Medicare Advantage linked to fattest gross profits in health insurance: report

The Medicare Advantage market recorded the strongest gross margins in the health insurance industry last year, according to the independent healthcare policy organization KFF.

Following an analysis of the sector's financial performance, the non-profit said this week that private payers serving the federally funded program generated a gross margin of $1,982 per member in 2023.

In contrast, the Medicaid program, jointly funded by the states and the federal government, recorded the lowest gross margin of $753 per enrollee, while individual and employer markets posted per-member gross margins of $1,048 and $910, respectively.

Medicare Advantage is a fast-growing managed care market served by publicly traded health insurers such as UnitedHealth (NYSE:UNH), Humana (NYSE:HUM), CVS Health (NYSE:CVS), Alignment Healthcare (NASDAQ:ALHC), and Clover Health (CLOV).

Major operators in the Medicaid market include Centene (CNC), Elevance Health (ELV), and Molina Healthcare (MOH), while Cigna (CI) mainly serves commercial insurance.

KFF used data from the Health Coverage Portal, a health plan performance database run by healthcare analytics firm Mark Farrah Associates, for its analysis. However, its review had certain limitations, as it did not include data from the U.S. territories and only partially included Medicaid data from Arizona, California, Delaware, New York, and Oregon.

The report indicates how private health insurers perform financially as they play an increasingly dominant role in Medicare and Medicaid.

According to federal data, private Medicare Advantage plans serve more than half of eligible Medicare beneficiaries, while Medicaid managed care plans (typically private insurers) cover about three-quarters of the program's membership.

Despite concerns over a recent spike in demand for medical care among Medicare enrollees, KFF said the gross margin in the Medicare Advantage market remained largely similar to that in 2022.

In January, Humana (HUM) shares sold off after the company cut its outlook twice early this year, citing higher than anticipated medical costs in its Medicare Advantage business.

The report also sheds light on a key industry performance metric called the medical loss ratio, which measures the share of premiums health insurers pay for members' medical costs.

According to KFF, individual insurance plans recorded the lowest medical loss ratio of 84% in 2023, while Medicare Advantage and Medicaid managed care markets recorded 87%, the industry's highest. Employer plans fell in between, recording 86%.

However, medical loss ratios continued a recent trend of stability, remaining broadly similar across segments following spikes in 2020 due to COVID-driven demand for medical care.