AM Best says US health underwriting gain represented 68% decline

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A new report from AM Best says that the total underwriting gain seen by the US health insurance industry in 2021 of $23.9bn represented a decline of 65% from the previous year as the industry saw a more-normal level of activity.

This was, said the firm, despite an overall positive slew of results. Part of it was attributable, AM Best said, to the growing costs of Covid-19. The firm’s report says that that COVID-related expenses—including treatment, testing, and vaccinations—led to claims costs that significantly exceeded projections across the industry.

Because the mandate for insurers to cover COVID-19 testing, carriers had limited flexibility to direct members to testing locations with lower costs. Non-COVID utilization, which dropped sharply in 2020 for elective procedures and office visits, also bounced back from the lows of 2020, although remained below historical levels.

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Doniella Pliss, director at AM Best, said: “The two variant waves in 2021 resulted in higher COVID treatments and costs, but the first wave in the late summer had higher positivity rates among younger groups typically covered under employers’ plans, which drove down commercial segment earnings.”

The report also finds:

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  • Commercial lines of health insurance business reported the largest decrease in underwriting gains, of approximately 90% to $1.2bn, while Medicare Advantage reported gains of $7.4bn.
  • The industry saw large quarterly fluctuations in 2021, reflecting the two COVID-19 variant waves. Underwriting gains came to $12.7bn in the first quarter but declined in the subsequent three quarters and turned into an underwriting loss of $3.8bn in the last quarter.
  • Premium growth continued across the health industry, albeit with a modest decrease in the group segment. However, this was offset by expansion of individual business sold through the Affordable Care Act exchanges, which saw enrolment grow year over year by 2.5m to 14.5m.
  • Large health insurers with diversified product portfolios were better able mitigate losses, while volatility was accentuated more in health companies that lacked diversification and scale.
  • The U.S. health industry remains well-capitalized despite the impact of pandemic. The industry recorded its highest level of capital and surplus for year-end 2021 of $273bn, an increase of 13.5%, or $33bn, from the prior year.
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