Nov 7, 2019

Health insurers are eating higher medical costs

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Data: Company filings; Chart: Naema Ahmed/Axios

Almost all of the major health insurance companies are spending more on medical care this year than they have in the past.

The big picture: Rising prices and more services for some sicker patients are among the many reasons why this is happening. That uptick in spending has freaked out Wall Street, even though insurers are still quite profitable.

Driving the news: Almost all of the eight major publicly traded insurers have shown their medical loss ratio — the percentage of premium revenues they're spending on medical claims — is rising this year.

  • UnitedHealth Group, the largest insurer in the country, said its loss ratio was 82.4% in the third quarter this year compared with 81% in the same period a year ago.
  • But these companies are handling billions of premium dollars, so any increase in medical claims equates to hundreds of millions of dollars in additional spending, which they don't want.

Between the lines: Medical loss ratios are often higher for health plans that cover more older adults, the disabled and the poor, because those groups typically need more care or are in the hospital more frequently.

But costs have been climbing in some commercial markets, too.

  • Anthem executives admitted on their earnings call that the company is dumping some employers with workers who had medical needs and costs that were too high.
  • CVS Health, which now owns Aetna, previously said some middle-market clients had employees that it thought were getting too many services and drugs.
  • CVS "intensified our medical management in those geographies," an executive said on the earnings call.

The bottom line: Health insurance companies closely track their medical loss ratios and aim to hit those targets most often by charging higher premiums, denying care, forcing people to use lower-priced providers or declining to cover people they deem to be too expensive.

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