Wednesday, February 5, 2020

Profitability in the Health Care Market Has Never Been Better

For many years I have followed Allan Baumgarten's detailed health care market reports.

His latest covers the state of Florida and provides what I am sure is a representative sample of what is happening across the country.

A few excerpts:

  • Continued consolidation by health insurers and hospitals systems combined with coverage expansion has improved profits for both. Profits for Florida HMOs increased by 12% in 2018, and South Florida hospitals reported average profit margins of 8%, their highest in recent years.

  • South Florida hospitals recorded combined profits of $1.279 billion in 2018 and have posted combined profits above $1 billion for four of the past five years.  
  • Hospitals in the Orlando area had average margins of 12.9% in 2018, up from 11.6% in 2016. Orlando Health, the second largest system there, posted net income of $531.4 million and a margin of 20%, while AdventHealth, the largest system, had net income of $539.3 million and a 13.4% margin. Even so, inpatient days and occupancy dropped in the region.  
      
  • The health insurance market has grown significantly more concentrated in the last three years as companies like Anthem and Blue Cross Blue Shield have acquired a number of HMOs. In 2018, the four largest HMO companies -- the five Blue Cross Blue Shield HMOs, Humana, UnitedHealthcare's HMOs and WellCare -- had 64.2% of the market, compared to 51.5% two years earlier. 

  • As a result of their market power and favorable claims experience, HMOs enjoyed strong profits in 2018, particularly on their individual and Medicare Advantage plans. Florida HMOs had net income of just under $1 billion in 2018, or 2.2% of premium revenues. That compares to combined net income of $891.1 million in 2017. Molina, Humana and WellCare had the highest margins. In addition, Blue Cross Blue Shield had net income of $694.6 million on its PPO plans.

  • Medicare Advantage plans had underwriting income of $724.9 million down from $800 million in 2016, but still very strong. Underwriting income for commercial (individual and group) plans increased from $172 million in 2016 to $725.3 million in 2018. Blue Cross Blue Shield has been very successful in the individual market and had $936.8 million in underwriting profit on its group and individual plans. New competitors - Oscar and Bright Health - have entered the individual market in much of the state - and premium rates have dropped for most plans.   
     
  • After years of steady growth, enrollment in Florida HMOs fell by 2.2% in 2018. Enrollment in Medicaid and commercial plans fell. UnitedHealthcare's HMOs, WellCare and Blue Cross BlueShield's PPOs added the most new enrollees.
I would highlight one Obamacare related finding:

"Blue Cross Blue Shield has been very successful in the individual market and had $936.8 million in underwriting profit on its group and individual plans."
Readers of this blog know that I have made the point that individual market health insurers finally figured out how to make money in Obamacare––drive the rates high enough to make money knowing that the subsidized are immune to huge rate increases but do so at the expense of the 40% of the market that gets no subsidy.

How well is that strategy working in Florida?

Blue cross made $936.8 million in the individual––as well as the small group–– market.

How are unsubsidized consumers doing?

Going to eHealth.com and looking up the lowest available premium for a family of four––mom and dad age-40––in Orlando, the cheapest plan available is a Molina Bronze Obamacare plan with an annual premium of $13,000 a year with a per person deductible of $8,000. That means this family would have to incur $21,000 in expenses to qualify for anything other than a preventive care visit.



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