Interesting comparison of individual, small group, and large group health insurance markets

In the ongoing debate over healthcare costs—and especially over the Patient Protection and Affordable Care Act (PPACA) mandates concerning medical loss ratios—it is interesting to revisit a 2011 Milliman report on the commercial health insurance market using financial and enrollment data from the “Supplemental Exhibit.” From the paper’s introduction:

What level of market competition exists in the current health insurance marketplace? Are administrative costs and underwriting margins in teh individual and small group markets significantly higher than in the large group market? How does claim cost experience vary between individual and small group markets?

In the past, these questions have been difficult to answer because insurance carrier financial experience was generally only reported on an aggregate basis rather than at the state level or for a specific segment of the commercial insurance market. Because of the introduction of a new financial exhibit that must be completed with each carrier’s year-end statutory filing, many of these questions can now be answered with greater clarity.

Some of the report’s interesting findings include:

  • Significantly higher per member per month (PMPM) administrative costs for individual and small group markets
  • Higher medical loss ratios for large group markets
  • Market share is most concentrated in the large group market, with 44 states having five or fewer companies representing 90% of market share or more

The paper also covers the influence of rating rules on individual and small group premiums, showing how requirements for community rating affect claim cost ratios across different regulatory regimes.