Market Overview

Best's Market Segment Report: U.S. Government-Related Health Insurance Business Continues to Grow Despite Risks


The U.S. health insurance industry's premium composition is increasingly
shifting toward government-sponsored business, which exposes carriers to
additional risks as the business is generally low-margin and results in
a greater reliance on state and federal funding, according to a new A.M.

The Best's Market Segment Report, "Government-Related Health
Insurance Business Continues to Grow Despite Risks," states that the
health industry is generating an increasingly large share of premium
from Medicare Advantage, Medicaid and individual commercial businesses.
Medicaid reported the largest increase in net premiums written growth,
to $224.0 billion in 2017 from $43.1 billion in 2007, owing to Medicaid
expansion under the Affordable Care Act (ACA), and to more states
turning to managed care to run traditional, pre-expansion Medicaid
programs. Medicaid's share of total industry NPW in that timeframe rose
to 27.1% from 10.2%, although much of that growth occurred in 2014-2015.
Medicare Advantage also has been a major source of premium growth for
health insurers, with NPW increasing to $202.7 billion in 2017,
representing 24.5% of overall industry premium, from $69.9 billion in
2007. Like Medicaid, growth in this business has flattened over the past
few years.

According to the report, changes in the nature and financing of the
individual market under the ACA have effectively turned this portion of
the commercial market into government-sponsored business. At the same
time, group commercial premium since 2014 has experienced lower growth
because of relatively stable medical cost trends, the absence of
material membership expansion and the transition to self-funded
arrangements. As a result, many commercial carriers have a greater
exposure to government-financed business without having increased their
participation in Medicaid or Medicare Advantage lines. Increased
exposure to the individual exchange business and its financial losses
led to a decline in underwriting margins in the commercial segment from
2014 to 2016, but the market recovered in 2017, leading to historically
high results for the overall commercial segment.

A.M. Best notes that the higher volume of government payments to
insurers related to Medicaid, Medicare Advantage and the ACA exchange
could lead to short-term liquidity pressure because of the timing of the
receipt of funds and possible delays related to budgetary issues.
Insurance companies also are more exposed to legislative and regulatory
actions, some of which have been highly unpredictable in recent years.
With health care remaining a controversial political issue, the
regulatory regime is likely to remain volatile over the near to medium
term, especially as it relates to the individual exchange segment.

As industry consolidation continues and as companies build massive
operational infrastructures to service these programs, a quick exit, if
need be, may be more difficult. However, the larger carriers, as well as
some of the midsize ones, have been successful in adjusting to
regulatory changes and revising business models to accommodate different
population needs under the government programs.

To access the full copy of this special report, please visit

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