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Higher margins and lower medical loss ratios present a challenge for insurers in setting premiums

Affordable Care Act medical loss ratio rebates in 2021 will likely be exceptionally large across commercial markets.

Susan Morse, Managing Editor

Setting premiums for 2021 is a challenge for insurers. (Pixabay image by Claudio_Scott.)Setting premiums for 2021 is a challenge for insurers. (Pixabay image by Claudio_Scott.)

A Kaiser Family Foundation study confirms other reports that the pandemic has added to health insurer profits and margins, but that the impacts of pent-up consumer demand for delayed care and of coverage for a potential vaccination create costs that are hard to project.

The Kaiser Family Foundation found that, as of the end of June, average margins increased and medical loss ratios dropped compared to 2019 across the fully-insured group and Medicare Advantage markets. Gross margins – the amounts by which premium income exceeds claim costs – among group market plans increased 22% through the second quarter of 2020, relative to the same period in 2019. 

Gross margins among Medicare Advantage plans rose 41% through the first six months of 2020 compared to last year. Gross margins tend to be higher for Medicare Advantage than for the other health insurance markets because Medicare covers an older, sicker population with higher average costs. 

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Prior to the pandemic, margins in the group and Medicare Advantage markets had grown gradually over recent years.

Individual market margins remained relatively stable through the first six months of 2020, decreasing just $4 per member per month and remaining much higher than in the earlier years of the ACA, the report said. The data suggests that insurers in the individual market remain financially healthy after a year and a half, with no individual mandate penalty, even while the coronavirus outbreak worsened.

ACA medical loss ratio rebates in 2021 will likely be exceptionally large across commercial markets. 

This may, in part, explain why many commercial insurers have volunteered to cover COVID-19 treatment costs, waived telemedicine cost-sharing, or expanded mental health services during the pandemic. By increasing their claims costs, insurers can proactively increase loss ratios and owe smaller rebates next year.

Medicare Advantage insurers may be offsetting loss ratios by offering more benefits than they currently do. 


Higher gross margins and lower medical loss ratios present uncertainty and a challenge for insurers as they set premiums for next year. 

Insurers are making different assumptions about the extent to which utilization will rebound, or the potential for higher health costs due to the potential for widespread vaccination, the report said.


The pandemic caused a sizable decrease in the use of healthcare services during the first half of 2020. Job losses appear to have led to coverage loss in the employer market and increases in Medicaid enrollment.

The Kaiser report analyzed data from 2013 to 2020 to examine how insurance markets performed through the first half of this year as the pandemic spread. 

Twitter: @SusanJMorse
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