// . //  Insights //  Health Insurer Financial Pulse Volume 11

Following an in-depth review of some of the largest public health insurance companies, we assessed the profitability for their insured block of business. The results showed a decrease in profit margins from Q3 2022 to Q4 2022. This decrease in margin is partly attributable to increased medical loss ratios and operating expenses during Q4 2022. Below we break down the key learnings from the review.

Net income trends for insured business

Cigna saw the biggest decline in profit margin from Q3 2022 to Q4 2022. Cigna dropped by 3.2% while CVS Health (Aetna) and Elevance (fka Anthem) had noticeable drops of 2% and 1.6% respectively. Lastly, United Healthcare’s profit margin saw a slight drop of 0.7%. Declines in profit margins are due to slightly increased loss ratios and administrative expense ratios often seen in the 4th Quarter due largely to the seasonality claims and certain administrative expenses like open enrollment costs.

Health Care Estimated Net Income - Insured Business*
Q1 2020 - Q4 2022

*Based on 10Q and 10K segment reporting, and revenue and expense allocation estimates between insured and self-insured business. Results may not tie directly to other internal or external financial reports.

Medical loss ratio trends

Reported loss ratios are 89.4% for Elevance (fka Anthem), 86.0% for CVS Health (Aetna), 83.8% for Cigna, and 82.8% for UnitedHealthcare. Loss ratios have been impacted by seasonal patterns and the return to more stable utilization than seen in 2020.

Medical Loss Ratio*
Q1 2020 - Q4 2022

*Based on 10Q and 10K segment reporting, and revenue and expense allocation estimates between insured and self-insured business. Results may not tie directly to other internal or external financial reports.

Estimates of operating expense ratio

Operating expenses rose slightly from Q3 2022 to Q4 2022. Elevance’s (fka Anthem) and CVS Health’s (Aetna) operating expense ratios both increased by 0.4% while UnitedHealthcare’s increased by 0.3%. Cigna’s expense ratio increased by 1.4% over the same timeframe.

Operating Expense Ratio*
Q1 2020 - Q4 2022

*Based on 10Q and 10K segment reporting, and revenue and expense allocation estimates between insured and self-insured business. Results are indicative, but may not tie directly to other internal or external financial reports.

Key highlights from Q4 2022 earnings releases and call transcripts

Financial outlook into 2023

In addition to discussing their quarterly and full-year historical performance, some carriers discussed their 2023 outlook during Q4 earnings calls. These selected carriers projected considerable revenue growth, and medical care ratios generally in line with those experienced in 2022.

  • Cigna: Forecasts consolidated adjusted revenues of $187 billion in 2023, about 3% higher than realized in 2022, resulting in at least $24.60 adjusted earnings per share, which is over 5% higher than 2022. Within their healthcare business, CIGNA is expecting the medical care ratio to be in the range of 81.5% to 82.5%, in line with the 81.7% experienced in 2022.
  • Elevance (fka Anthem): Assumes operating gain for the year to be greater than $9.35 billion, reflecting growth of at least 10% over 2022, and adjusted earnings per share of at least $32.60, which is over 12% higher than 2022. The full-year consolidated medical loss ratio is expected to be in the range of 86.7% to 87.7%, an improvement of approximately 20 basis points compared to 2022.
  • Humana: Projects consolidated revenues north of $103 billion, 11% higher than 2022, and adjusted earnings per share of at least $28.00, which represents 11% growth over 2022. Within their insurance segment, they expect a benefit ratio of 86.3% to 87.3% which is 20 basis points higher than the 2022 benefit ratio of 86.6% at the midpoint.
  • Molina: Expects premium revenue of $32 billion in 2023, indicative of 4% growth over 2022, and adjusted earnings per share guidance of at least $19.75, which is over 10% higher than 2022. The 2023 consolidated medical care ratio is expected to be approximately 88% which is consistent with their 2022 results.

Commercial and Medicaid memberships and the impact of Medicaid redeterminations

In the Q4 2022, carriers continued to see increases in their Medicaid membership driven by the pause in redetermination of Medicaid eligibility. Total Commercial membership also increased for the second consecutive quarter after a slight decline in Q2 2022.

During their earnings calls, most carriers provided insight into their general membership expectations for 2023. In addition, many also commented on the expected timing and impact of the return of Medicaid eligibility redetermination requirements on their Medicaid and Commercial enrollment. Currently the Public Health Emergency is scheduled to end on May 11, 2023 with redeterminations beginning April 1, 2023 and to be completed within 14 months, so by May 2024.

  • Centene: By April 1, 2023, Centene expects that they will have grown by over 3.4 million Medicaid members since the onset of the pandemic. They predict that they will lose about 2.2 million, or 65%, of those new members over the next one and a half years. However, they expect to gain about 200,000 to 300,000 of those members back through their Individual Marketplace business.
  • Cigna: Provided some insighted into expected membership gains in 2023, including at least 300,000 members within Individual business due to expansion into new geographies and the exit of competitors from others. They also stated that they are not expecting a significant uplift from Medicaid redeterminations on their Individual business.
  • Elevance (fka Anthem): Projects that 2023 total Commercial membership will end the year in the range of 32 million to 32.5 million members, up over 800,000 members compared to year-end 2022. Medicaid membership is expected to end the year in the range of 10.8 million to 11.3 million, down from 11.6 million at year-end 2022, driven by the attrition associated with eligibility redeterminations beginning on April 1, 2023.
  • Humana: Expects a 300,000 member decrease within their Commercial segment. In Medicaid, Humana expects growth of 25,000 to 100,000 members by year-end 2023 driven by membership additions of 140,000 associated with the start of the new Louisiana contract, which began on January 1, and 130,000 for the beginning of the new Ohio contract, which began on February 1. Finally, these gains are expected to be offset by a loss of 170,000 to 245,000 enrollees due to the restart of redeterminations.
  • Molina: Expects to end 2023 with approximately 4.7 million Medicaid members which is generally in-line with the end of 2022. This estimate reflects the mid-year inception of their new Iowa contract and membership from their My Choice Wisconsin acquisition, which they predict will be entirely offset by the second quarter resumption of redeterminations. They also project to end the year with approximately 230,000 Marketplace members, representing a loss of over 33% due a new pricing strategy meant to achieve target margins for this business in 2023.
  • UnitedHealth Group: While UnitedHealth did not give insight into the expected membership loss for their Medicaid business due to the restart of redeterminations, they did comment that they believe the process will take 10 to 12 months depending on the state. UnitedHealth also project that they will gain an additional 1 million Commercial members.

The chart below displays the changes in reported enrollment for the 12 most recent quarters for Commercial and Medicaid for a set of public companies where counts were available on a consistent basis.  Total Commercial membership increased slightly, and Medicaid membership continue its fairly robust growth with a reported increase of approximately 879,000 in the quarter.

End of Q4 2019 - End of Q4 2022

*Combines enrollment data for subset of Public companies from 10Qs and 10Ks.