Health Insurance Carriers
Description
Companies in this industry underwrite health and medical insurance policies and administer group hospitalization plans, health maintenance organization (HMO), and preferred provider organization (PPO). Major companies include Aetna, Anthem Blue Cross and Blue Shield, Cigna, Humana, and UnitedHealthcare (all based in the US); as well as Aegon (the Netherlands); Allianz (Germany); and Bupa (UK).
Worldwide, demand for private health insurance is rising. Because of COVID-19, private health insurance demand in developing countries such as India and China experienced a sudden demand growth. Global healthcare spending reached about $10 trillion in 2021, according to the World Health Organization (WHO).
The US health insurance carriers industry includes about 5,400 establishments (single-location companies and units of multi-location companies) with combined annual revenue of about $860 billion.
COMPETITIVE LANDSCAPE
Demand for health insurance products is driven by cost of medical care. The profitability of individual companies depends on efficient operations and the ability to enter favorable contracts with health care providers. Large companies and organizations have advantages in negotiating contracts with providers. Small companies can compete successfully by specializing in types of coverage or populations. The US industry is highly concentrated: the 50 largest companies generate about 85% of revenue.
Health payment reform efforts have altered the competitive landscape for health insurance companies around the globe. The Affordable Care Act (ACA) mandated health care coverage availability for all Americans beginning in 2014; the law also eliminated some common exclusions, such as pre-existing conditions. Managed care companies compete for customers in new government-run health exchanges, where small companies and individuals can buy health care coverage. Many state Medicaid programs offer expanded coverage under ACA provisions. People in the US covered by insurance totaled to more than 90% in 2023. Private health insurance coverage was more prevalent compared to public health coverage, covering about 65% and 35%, respectively. The most common sub-type is employment-based insurance. Penalties for not having health coverage were eliminated in 2019, but other components including individual marketplaces, Medicaid expansion, and consumer protections remain intact. The law also aims to tighten coverage and payment rates, including through reductions in Medicare and Medicaid reimbursements.
PRODUCTS, OPERATIONS & TECHNOLOGY
Main revenue source of health insurance carriers includes health and medical insurance, which accounts for about 30% of the industry revenue. This is followed by group managed care medical plans (about 20%), individual medical service plans (about 15%), and supplemental Medicare insurance plans (about 15%).
HMO plans, sometimes called "closed system" plans, have the most active cost-containment features. Consumers choose a primary care doctor from the HMO's network of providers, and that doctor acts as a gatekeeper for any other medical services the consumer may need.
PPO plans, also called "open access" plans, allow consumers to use any services within a network of providers without a gatekeeper. Services outside the provider network are available but cost more.
POS plans are hybrids of HMOs and PPOs. They typically feature a primary care doctor who makes referrals for services within the provider network and allows consumers to avoid the gatekeeper and directly use services within the network, though at a higher cost. POS plans also enable consumers to go outside the network at a still higher price. The higher costs in PPO and POS plans take the form of higher deductibles, higher co-payments, or lower reimbursement rates.
Medicare, Medicaid, and other government health programs are administered by the Centers for Medicare and Medicaid Services (CMS). Commercial insurance providers offer Medicare supplemental insurance, Medicare Part D drug coverage, Medicaid, and other government health plans through agreements or contracts with federal and state agencies.
Because of pressure to reduce rising health care expenses, health insurance carriers attempt to control costs in several ways, including by providing financial incentives to providers and users to minimize the amount of care used, contracting for services at discounted rates, reviewing expenses to determine the legitimacy of costs, and establishing low-cost treatment protocols providers are expected to follow. Insurers are adopting containment measures promoted by the ACA, such as integrated care, coordinated care, and population health management programs. These programs work to align financial incentives with quality measures, coordinate patient care among various practitioners, monitor patients with chronic conditions, and encourage the use of health information technology (HIT) systems. The formation of patient-centered medical homes (PCMHs) and accountable care organizations (ACOs) support these goals.
Health insurance companies are administrative intermediaries between health care providers and users. They sign annual contracts for services with doctors, hospitals, testing labs, and other providers, usually at a fixed cost, and resell them to plan members for a fixed monthly premium. The risk that actual expenses will be higher than the contracted reimbursement rate is borne mainly by providers. However, most plans provide a stop-loss provision that shares excess expenses with providers after a specific expense limit is reached. The company typically bears the risk that premiums are insufficient to cover administrative costs.
In addition to using financial incentives to limit unnecessary medical care, health insurance companies operate "utilization management" to review and standardize care. Committees of doctors and administrators review the actual services used in the network to determine if they're being used appropriately and to recommend standards of care that doctors and hospitals are expected to follow. Committees also determine drug formularies that specify which drugs should be used to treat specific conditions. The statistical information collected for utilization management is also used for risk management and underwriting, the process of determining what payments to offer providers and what premiums to charge consumers.
Worldwide, demand for private health insurance is rising. Because of COVID-19, private health insurance demand in developing countries such as India and China experienced a sudden demand growth. Global healthcare spending reached about $10 trillion in 2021, according to the World Health Organization (WHO).
The US health insurance carriers industry includes about 5,400 establishments (single-location companies and units of multi-location companies) with combined annual revenue of about $860 billion.
COMPETITIVE LANDSCAPE
Demand for health insurance products is driven by cost of medical care. The profitability of individual companies depends on efficient operations and the ability to enter favorable contracts with health care providers. Large companies and organizations have advantages in negotiating contracts with providers. Small companies can compete successfully by specializing in types of coverage or populations. The US industry is highly concentrated: the 50 largest companies generate about 85% of revenue.
Health payment reform efforts have altered the competitive landscape for health insurance companies around the globe. The Affordable Care Act (ACA) mandated health care coverage availability for all Americans beginning in 2014; the law also eliminated some common exclusions, such as pre-existing conditions. Managed care companies compete for customers in new government-run health exchanges, where small companies and individuals can buy health care coverage. Many state Medicaid programs offer expanded coverage under ACA provisions. People in the US covered by insurance totaled to more than 90% in 2023. Private health insurance coverage was more prevalent compared to public health coverage, covering about 65% and 35%, respectively. The most common sub-type is employment-based insurance. Penalties for not having health coverage were eliminated in 2019, but other components including individual marketplaces, Medicaid expansion, and consumer protections remain intact. The law also aims to tighten coverage and payment rates, including through reductions in Medicare and Medicaid reimbursements.
PRODUCTS, OPERATIONS & TECHNOLOGY
Main revenue source of health insurance carriers includes health and medical insurance, which accounts for about 30% of the industry revenue. This is followed by group managed care medical plans (about 20%), individual medical service plans (about 15%), and supplemental Medicare insurance plans (about 15%).
HMO plans, sometimes called "closed system" plans, have the most active cost-containment features. Consumers choose a primary care doctor from the HMO's network of providers, and that doctor acts as a gatekeeper for any other medical services the consumer may need.
PPO plans, also called "open access" plans, allow consumers to use any services within a network of providers without a gatekeeper. Services outside the provider network are available but cost more.
POS plans are hybrids of HMOs and PPOs. They typically feature a primary care doctor who makes referrals for services within the provider network and allows consumers to avoid the gatekeeper and directly use services within the network, though at a higher cost. POS plans also enable consumers to go outside the network at a still higher price. The higher costs in PPO and POS plans take the form of higher deductibles, higher co-payments, or lower reimbursement rates.
Medicare, Medicaid, and other government health programs are administered by the Centers for Medicare and Medicaid Services (CMS). Commercial insurance providers offer Medicare supplemental insurance, Medicare Part D drug coverage, Medicaid, and other government health plans through agreements or contracts with federal and state agencies.
Because of pressure to reduce rising health care expenses, health insurance carriers attempt to control costs in several ways, including by providing financial incentives to providers and users to minimize the amount of care used, contracting for services at discounted rates, reviewing expenses to determine the legitimacy of costs, and establishing low-cost treatment protocols providers are expected to follow. Insurers are adopting containment measures promoted by the ACA, such as integrated care, coordinated care, and population health management programs. These programs work to align financial incentives with quality measures, coordinate patient care among various practitioners, monitor patients with chronic conditions, and encourage the use of health information technology (HIT) systems. The formation of patient-centered medical homes (PCMHs) and accountable care organizations (ACOs) support these goals.
Health insurance companies are administrative intermediaries between health care providers and users. They sign annual contracts for services with doctors, hospitals, testing labs, and other providers, usually at a fixed cost, and resell them to plan members for a fixed monthly premium. The risk that actual expenses will be higher than the contracted reimbursement rate is borne mainly by providers. However, most plans provide a stop-loss provision that shares excess expenses with providers after a specific expense limit is reached. The company typically bears the risk that premiums are insufficient to cover administrative costs.
In addition to using financial incentives to limit unnecessary medical care, health insurance companies operate "utilization management" to review and standardize care. Committees of doctors and administrators review the actual services used in the network to determine if they're being used appropriately and to recommend standards of care that doctors and hospitals are expected to follow. Committees also determine drug formularies that specify which drugs should be used to treat specific conditions. The statistical information collected for utilization management is also used for risk management and underwriting, the process of determining what payments to offer providers and what premiums to charge consumers.
Table of Contents
- Industry Overview
- Quarterly Industry Update
- Business Challenges
- Business Trends
- Industry Opportunities
- Call Preparation Questions
- Financial Information
- Industry Forecast
- Web Links and Acronyms
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