Six financial performance trends in Medicare and Medicaid

How have US health plans' government lines of business fared in the wake of health policy and market turbulence? While many health plans increasingly regard Medicare Advantage and Medicaid managed care as growth engines, our most recent analysis indicates that health plan financial performance in these segments between 2011 and 2016 varied widely, with significant differences related to scale, tenure, and geography.

This paper presents six key findings:

1. Government programs accounted for a large and growing share of health plan revenue and underwriting gains.* The share of fully insured revenue attributable to Medicare Advantage and Medicaid managed care grew from 33 percent in 2011 to 46 percent in 2016. The share of total underwriting gains from Medicare Advantage and Medicaid managed care increased from 33 percent in 2011 to 57 percent in 2016.
2. The Medicare Advantage business experienced significant top-line growth and bottom-line volatility, including a notable decline in underwriting performance in 2014 and 2015. Industry-wide underwriting gains declined from $4.3 billion in 2012 to $1.3 billion in 2015, before rebounding to $4.8 billion in 2016.
3. In Medicaid managed care, aggregate plan revenue increased steadily between 2011 and 2016, and underwriting performance grew impressively before retrenching in 2016. Medicaid managed care revenue increased from $64 billion in 2011 to $207 billion in 2016. Underwriting gains doubled in 2014 and 2015 before falling 50 percent in 2016.
4. The largest Medicare and Medicaid plans by national revenue captured a disproportionate and growing share of industry underwriting gains. In Medicare Advantage, the top two plans generated 80 percent of aggregate underwriting gains and 46 percent of aggregate revenue in 2016. In Medicaid managed care, the top three plans captured 80 percent of 2016 underwriting gains and 37 percent of aggregate revenue.
5. Medicare Advantage performance variation widened beginning in 2014; smaller plans and newer entrants experienced substantial headwinds. The median underwriting results of US health plans in the Medicare Advantage business were below breakeven levels between 2014 and 2016, and over 50 percent of plans reported losses during this period.
6. Medicaid managed care markets exhibited widening performance variation at the company and state levels beginning in 2014. Medicaid plans in states that expanded Medicaid eligibility under the Affordable Care Act (ACA) had higher margins in all years except 2016.

*Underwriting gains refer to the profit that an insurance company makes after paying all claims, and incurring general and administrative expenses. See methodology and appendix for further details.

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