TOP TEN HEALTH INSURERS IN THE UNITED STATES

From the Desk of Bob McNett……

Which Insurance Companies are Writing Most of the Health Insurance in the U.S.?

In the spirit of the now-retired David Letterman’s Top Ten List (but without the humor,) let’s look at the top ten underwriters of health insurance in the United States.

When I became active as a health insurance broker in 1982, it was a radically different sort of business. No managed care networks (HMO and PPO,) at least in Oklahoma. Everything was fee-for-service. No automatic claims filing by doctors or hospitals…..I remember such now-forgotten items as “claim forms.” My clients would complete the form, then bundle all their medical receipts and send them into the the insurance company claims office, hoping to be reimbursed within some sort of reasonable time frame. Underwriting was individual-specific on small group health plans….for example, an employee might be accepted for coverage, but his spouse declined if she was being treated for some sort of health condition.

However, one of the biggest changes from those days is the advent of the mega-health insurance company. These are the health insurance companies that dominate the markets nationwide.

In the beginning years of my career, there was a plethora of group health carriers in the market. Most life insurance companies also offered group health insurance. Many businesses would simply shop the group health insurance market every year, and go with the plan with the cheapest rates. A business with healthy employees might go five or more years with a different insurance plan each of those years.

For insurance companies, is was a relatively simple business. A simple plan design, usually with a $100 deductible, open some claims offices, and pay claims as they came in. Federal regulation was sparse. No COBRA, no HIPPA, and, especially, no Affordable Care Act.

Then, in the late 70’s and early 80’s, medical inflation and increasing health care spending hit the country with raging consequences. New medical technologies, and the lack of any built-in cost controls, caused health insurance rate increases of up to 50%, 60%, 70% or more in just a year’s time, for several years running. As a result, most of the insurers offering health insurance as only a part of their overall business eventually dropped out. Even major life insurance and property and casualty companies that underwrote large blocks of group health business (i.e. Prudential, Travelers, Metlife, Fireman’s Fund and others) abandoned the market, unwilling to make the massive investments to make this business profitable. Health insurance had quickly become a money-burning business for insurance companies. Insurers couldn’t raise premiums quickly enough to keep up with mushrooming claims.

The last major hold-out of a big life insurer offering health insurance was The Principal Financial Group, which The McNett Agency had a close relationship with for many years. After the Affordable Care Act was passed in 2010, they finally announced they were exiting the health insurance business after having been in it since 1941. United Healthcare came to the rescue to take over existing clients. Principal is still a major life insurer and retirement plan provider.

The health insurance market, over time, shrunk to a vastly reduced number of major players nationwide. These players filled the gap by abandoning other lines of business and becoming health insurance companies only (along with dental, group life, etc.) A number of brand new companies sprang up to serve the market. These are the innovative carriers that began the long road to managed-care plans (HMO and PPO) with contracts between insurance carriers and medical providers to form built-in cost controls. Insurers even began hiring doctors to review “medical necessity” of treatments. The good old days of just paying claims as they came in quickly faded.

The result of all this change and turmoil is the health insurance market we have today…..one in which a much more limited number of carriers write a large percentage of the business. To make any kind of profit, these carriers are much more sophisticated than was required thirty and forty years ago, nowadays needing more complex plan designs, direct negotiations with medical providers, expert healthcare utilization programs, and more knowledgeable claims personnel.

The big trend for the last few years has been a continuation of the big boys buying out the little boys (more info on that discussed further in this blog.) The bigger carriers, in response to the Affordable Care Act, are thinking that bigger is better. This puts insurers like United Healthcare and Aetna in a position where they can have more leverage in pricing negotiations with doctor and hospital groups, which are seeing buy-outs and consolidations of their own. However, from the consumer’s standpoint, less competition in the health insurance market might not be a good long-term trend.

Now, who are these mega-carriers? Here’s tonight’s Top Ten List:

#10—Centene Group…..$13.6 billion in premiums. 1.6% of the total market. Heavy into government Medicare and Medicaid contracts. Centene may make an attractive takeover target, since insurers, with the advent of the Affordable Care Act, are more interested in government contracts that can be more profitable and predictable than the commercial health insurance market.

#9—Highmark….$14.6 billion in premium. 1.7% of the market. Operates as one of the major Blue Cross companies. (Blue Cross operates as totally separate companies in different areas of the country.) Serves Pennsylvania, Delaware and West Virginia.

#8—Aflac….$14.9 billion in premium. 1.8% of the total market. The quacking duck company has much higher profit margins that other carriers because it does not write basic health insurance. It writes “supplemental” plans to pay on top of it’s customers’ major medical coverage, premiums typically paid for by the employee on a payroll deduction. Such policies as cancer plans, hospital per-day indemnity programs and others are immensely profitable to the company, much more lucrative from a profit-margin standpoint than major medical insurance, yet do provide needed benefits. Aflac has carved out an estimable niche in the market for their supplemental products. It has sponsored one of the most successful national advertising campaigns in the history of American business. Three quacks for Aflac!

#7—–Cigna….$21.4 billion in premium. 2.6% of total market. In recent years, has specialized in the middle-sized employer partially self-funded market, with great success. Not overly active in Oklahoma, however. Buy-out talks continue with Anthem (a Blue Cross company) with current estimates of $48 billion paid for Cigna in the transaction. This would further reduce competition in the market.

#6—-Health Care Services Corporation….$28.9 billion in premium. 3.5% of the total market. Customer-owned, similar to a mutual life insurer. A major Blue Cross company, writes business in Illinois, Texas, New Mexico, Montana, and Oklahoma. Our local Blue Cross plan, operated as an Oklahoma entity for many years, joined this consolidation some years ago.

#5—-Humana….$45.8 billion in premium. 5.5% of the total market. Another carrier set for a buy-out, it is reported that Aetna has come to terms to buy this major group health and Medicare Advantage player. Humana, ten or more years ago, was a big provider of group health insurance to Oklahoma businesses, but largely withdrew from the Oklahoma market after losing a large chunk of this business when it got upside down on the cost curve. The company lost a lot of money on it’s Oklahoma group health block, and was forced to take two rate increases in one year. This caused many of it’s healthier Oklahoma business clients to migrate to other carriers. (This was pre-Affordable Care Act days…if you were not a healthy group, it was hard to change carriers.) It still is a major player in the Medicare Advantage market in Oklahoma. Now that most smaller national and regional carriers have already been taken over or just exited the health business, major carriers like Humana and Cigna have now become friendly take-over targets.

#4—-Aetna….$48.2 billion in premium. 5.8% of the market. Set to get much larger with the takeover of Humana. Active in the Oklahoma market, but has recently been spotty in their commitment to the small employer market in this state. Brokers like The McNett Agency hate that, because it makes the company a rather doubtful long-term solution for our small business clients. Just last year, Aetna completed a buy-out of Coventry Health, a regional health insurance carrier that was active in Oklahoma in both the employer-sponsored plan market and individual insurance. Again, one less choice for consumers.

#3—-Anthem….$52.4 billion in premium. 5.8% of the market. The largest of the Blue Cross companies, it merged with Wellpoint in 2004, and went under this name for the new, combined company until 2014, when it changed the corporate name back to Anthem (who knows why?) Serves customers in California, Colorado, Connecticut, Georgia, Indiana, Kentucky, Maine, Missouri, Nevada, New Hampshire, New York, Ohio, Virginia and Wisconsin. Will greatly increase their breadth once the Cigna take-over is completed.

#2—-Kaiser Foundation….$63.5 billion in premium. 7.6% of the market. Operating as Kaiser Permanente, it has its genesis as a 12-patient hospital operating in the middle of the Mojave Desert operated by an innovative young surgeon at the height of the great depression. The hospital was on it’s last legs financially when a local insurance agent came up with the idea of having insurance companies pay the hospital a fixed monthly fee to take care of the medical needs of the employees of several industrial companies in the area. For 5 cents per day per employee, with an extra 5 cents if the employee wanted his personal medical needs serviced, the first “prepaid” HMO-type plan was born. Do I hear volunteers for paying $3.00 per month for health insurance today? Kaiser gets it’s name from it’s association with the Kaiser shipyards, which operated three major ship-building sites in California, Oregon and Washington, building giant ships for the Navy beginning in 1941. Owner Henry J. Kaiser needed a way to provide healthcare to his 30,000 workers, and the young doctor from the Mohave Desert with his new-fangled insurance system was chosen to be the provider. Since those early days, Kaiser has become a non-profit organization that manages many for-profit hospitals and provider practices in several states.

#1—-United Healthcare….The Big Daddy of the health insurance industry, this company takes in $98.5 billion in annual premium, with fully 11.8% of the total market. The company is very active in the Oklahoma market, with very extensive provider networks in this state. In the past year or so, UHC introduced a cost-shaving HMO plan in Oklahoma. Unlike most other HMO plans, their HMO has a nationwide network with much more than just local doctors and hospitals. UHC is a relatively young company, started by a group of doctors in 1974. Innovation has marked their rapid growth, being the first company to introduce drug formularies, hospital pre-admission processes, cost-controlling doctors office software, behavioral and chemical dependency regimens, and transplant networks. The company was started right about the time that medical inflation and new medical technologies began to skyrocket medical spending in the U.S., and UHC was able to take advantage, in it’s first 20 years or so, of taking over blocks of business being abandoned by such companies as Metlife and Travelers, and later buying outright smaller players like Pacificare and Golden Rule.

So, there’s our Top Ten List for tonight. Now let’s hear Paul Schaefer and the CBS Orchestra play us into the commercial. Actually, I really miss Johnny, Ed and Doc Severenson. And before Doc, Skitch Henderson and the Tonight Show band. I think those guys might all be dead now. I’m really getting old.

Robert K. McNett, LUTCF
The McNett Agency
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Toll Free 1 866 497 7119