What's Happening?
A recent analysis by Morningstar projects that the six largest health insurance carriers in the United States—Aetna, Centene, Cigna, Elevance Health, Humana, and UnitedHealthcare—are expected to insure 56% of Americans by 2034, up from 41% in 2014. As of 2024, these companies cover 52% of the population. UnitedHealth and Elevance are anticipated to remain the largest firms by membership. The report highlights competitive advantages these large firms have over smaller players, including the trend of outsourcing government programs to private operators. However, the industry faces significant headwinds, such as elevated utilization rates that have reduced profits for all major insurers except Cigna over the past two years. The report also notes that the medical-loss ratios have spiked, particularly in Medicare Advantage plans, due to care delayed during the COVID-19 pandemic.
Why It's Important?
The projected growth of these major insurers indicates a consolidation trend in the health insurance market, which could have significant implications for competition and consumer choice. While larger firms may benefit from economies of scale, the reduced number of competitors could lead to higher premiums and less innovation. The financial pressures from increased utilization and regulatory scrutiny, particularly in Medicare Advantage plans, could impact the profitability of these insurers. Additionally, potential reforms to pharmacy benefit managers (PBMs) could alter the financial landscape for companies like Cigna and CVS Health, which have significant PBM operations. These changes could affect the overall healthcare costs for consumers and the strategic direction of these companies.
What's Next?
The Centers for Medicare & Medicaid Services plans to audit all Medicare Advantage plans annually, which could increase regulatory pressure on insurers. There is also potential for regulators to seek overpayment recoveries in Medicare Advantage, which could pose financial challenges. The ongoing election cycle and potential policy changes could further impact the industry. Companies may need to adapt to reforms in the PBM market, which could involve divesting PBM units or finding alternative business models. The industry will need to navigate these challenges while maintaining profitability and market share.
