Best’s Special Report: Second Year of COVID-19 Drives Health Insurers’ Earnings Down, But Impact Differs by Segment

Despite positive results for the U.S. health insurance industry in 2021, the total underwriting gain of $23.9 billion represented a decline of 65% from the previous year as the industry saw a more-normal level of activity, according to a new AM Best report.

Growing COVID-19-related costs also dampened industry results. The Best’s Special Report, “Second Year of COVID Drives Health Insurers’ Earnings Down, But Impact Differs by Segment,” notes 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.

Other highlights in the report include:

• Commercial lines of health insurance business reported the largest decrease in underwriting gains, of approximately 90% to $1.2 billion, while Medicare Advantage reported gains of $7.4 billion. “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,” said Doniella Pliss, director, AM Best.
• The industry saw large quarterly fluctuations in 2021, reflecting the two COVID-19 variant waves. Underwriting gains came to $12.7 billion in the first quarter, but declined in the subsequent three quarters and turned into an underwriting loss of $3.8 billion 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 enrollment grow year over year by 2.5 million to 14.5 million.
• 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. “Smaller carriers with concentrations in the commercial business found themselves in an especially difficult position—more than half of insurers with capital and surplus under $50 million posted underwriting losses in 2021, the highest share of companies with losses for that group since 2012,” said Antonietta Iachetta, senior financial analyst, AM Best.
• 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 $273 billion, an increase of 13.5%, or $33 billion, from the prior year.

To access the full copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=321516.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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