KFF: Medicare Advantage Boasts the Highest Gross Margins in Health Care

Of all privately insured markets, Medicare Advantage had the highest gross margins per member in 2023, reaching $1,982, according to a new analysis from KFF on insurers’ financial performance. Margins have been consistently higher in MA than other sectors over the past decade. KFF pointed out that while gross margins are generally one good indicator of financial performance, they do not necessarily mean higher profitability, as gross margins do not account for any administrative costs or tax liabilities. Researchers analyzed data compiled by Mark Farrah Associates based on information provided by insurers to the National Association of Insurance Commissioners.

MA’s gross margins remained high even as payers such as UnitedHealthcare and Humana Inc. began to sound the alarm on higher-than-expected utilization last year. Medicaid managed care saw its margins increase during the pandemic, when the federal government enacted a continuous enrollment provision. Now that eligibility checks have resumed, margins dipped for 2023, but were still higher than pre-pandemic levels. Margins in the individual and employer group markets, meanwhile, are rebounding after a COVID-era dip.

Researchers also looked at medical loss ratios (MLRs) across sectors. (A lower MLR indicates an insurer paid out less of its premium income in the form of medical claims.) MA’s MLRs have increased since the onset of the pandemic in 2020, when the sector saw a six-year low average of 83%. “The slight increase of the MLR in the Medicare Advantage market could imply decreased profitability,” wrote researchers, who also pointed to new supplemental benefit offerings as a possible reason for the increase.

Intensifying consolidation in the MA space — with large payers buying up physician groups, post-acute care facilities, PBMs, etc. — also makes it more difficult to see how insurers allocate funds across lines of business. MA plans are required to issue rebates to the federal government if MLRs fall below a certain threshold, and they can be penalized if requirements are not met for multiple years in a row.

In general, MLRs were similar across sectors in 2023. The individual market saw the lowest average MLRs at 84%, while MA and Medicaid managed care were the highest at 87%. “Each health insurance market has different administrative needs and costs, so similar MLRs do not imply that the markets are similar to each other in profitability,” KFF wrote.

This infographic was reprinted from AIS Health’s biweekly publication Radar on Medicare Advantage.