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Medicare Advantage Has Highest Gross Margins of Private Insurance


August 07, 2019

As the future of private health insurance continues to be a popular discussion, the Kaiser Family Foundation released a report detailing the financial performance of Medicare Advantage vs individual and group health insurance markets and found that MA averaged the highest gross margins.

Average gross margins, according to KFF, are the average amount by which premium income exceeds claims costs per enrollee in a given year. While this amount does not necessarily reflect that a plan is financially successful, it provides an effective benchmark for insurance performance by measuring how much an insurer retains, including profits, after settling enrollees claims.

Per the report, “Annual gross margins in the [MA] market averaged $1,608 per covered person between 2016 and 2018,” compared to $779 and $855 of the individual and group markets, respectively.

Differing over the years, due to policy changes, such as reductions to federal payments to plans under the ACA, MA plans average gross margins have remained relatively steady and on top since 2015. This can be attributed to the rising number of MA plans receiving bonuses for high quality ratings in the last three years.

Providing coverage to more than 22 million beneficiaries, MA plans are also estimated to cost enrollees $1253 less in annual spending than those enrolled in traditional Medicare benefits. About 14 million people and over 30 million people are enrolled in individual and group market plans, respectively.

“This analysis suggests insurers are profitable in each of the three markets,” said KFF in the report. “Several Medicare-for-All and other health reform proposals would allow private insurers to administer benefits under a new Medicare-like public option, which could be lucrative and attractive for health insurers, depending on how payments to plans are set.”

KFF’s report compared financial performance data of insurers reported to the National Association of Insurance Commissioners.

 —Edan Stanley

 

Reference:
Gretchen J, Fehr R, Cox C, Neuman T. Financial performance of medicare advantage, individual, and group health insurance markets. KFF website. https://www.kff.org/medicare/issue-brief/financial-performance-of-medicare-advantage-individual-and-group-health-insurance-markets/. Published August 5, 2019. Accessed August 7, 2019.

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