A.M. Best Special Report: More Than Half of U.S. Provider-Owned Plans Experienced Underwriting Loss in 2016

OLDWICK, N.J.--()--The sweeping changes and uncertainty in the U.S. health care industry increasingly are being felt by provider-owned health insurance plans, with 52.6% reporting an underwriting loss in 2016, according to a new A.M. Best special report.

The Best’s Special Report, titled, “Growing Pains as More Providers Set-Up Their Own Health Plans,” states that the total population of plans in this report experienced a $1.2 billion underwriting gain in 2016; however, the underwriting results of that same population become a $699 million loss for the year when Kaiser Foundation Health Plan's results are excluded. In addition, underwriting volatility is more prevalent as premium scale decreases. Based on underwriting margins from 2010-2016, provider-owned plans with less than $100 million of net premiums written have a smaller average margin, and the disparity in results by company is greater. Conversely, plans with more than $500 million of net premiums written have larger, and more stable, underwriting margins. Nearly one-third of provider-owned plans had premium levels between $100 million and $500 million as of year-end 2016.

Commercial business remains the predominant business line for provider-owned plans, accounting for more than half (54.5%) of the aggregated premium mix in 2016—noticeably higher than the health industry’s aggregated 38.2%.

However, a shift toward individual commercial business is affecting operating results. The poorer-than-expected experience reported by the Patient Protection and Affordable Care Act exchange marketplace population consistently has increased the medical loss ratio (MLR) on individual commercial business for provider-owned plans each year from 2013-2015, before posting a marginal reduction in 2016. The individual commercial business MLR has been substantially higher than the group business MLR. Because some provider-owned plans have either unexpectedly underpriced or aggressively priced some commercial products to remain competitive, the losses on the exchange business have exacerbated the deterioration in performance. Although this trend is evident throughout the health industry, it does appear to be more pronounced in the provider-owned space.

A.M. Best believes this recent string of contracting margins will be weighed by providers when determining whether to enter the market; stop providing assistance and exit the market; or to continue support for the potential growth and additional volume of members, with the expectation that an unfavorable experience eventually will turn around with proper underwriting adjustments. A.M. Best will continue to monitor the landscape and performance of the provider-owned plan market as organizations continue to make strategic adjustments.

To access a copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=262508.

A.M. Best is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2017 by A.M. Best Rating Services, Inc. and/or its subsidiaries. ALL RIGHTS RESERVED.

Contacts

A.M. Best
Jason Hopper, +1 908 439 2200, ext. 5016
Senior Industry Research Analyst
Credit Rating Criteria –
Research and Analysis
jason.hopper@ambest.com
or
Christopher Sharkey, +1 908 439 2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
Jim Peavy, +1 908 439 2200, ext. 5644
Director, Public Relations
james.peavy@ambest.com

Contacts

A.M. Best
Jason Hopper, +1 908 439 2200, ext. 5016
Senior Industry Research Analyst
Credit Rating Criteria –
Research and Analysis
jason.hopper@ambest.com
or
Christopher Sharkey, +1 908 439 2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
Jim Peavy, +1 908 439 2200, ext. 5644
Director, Public Relations
james.peavy@ambest.com