Health insurers show mixed profit margins in Q4’23

There was a noticeable decrease in market capitalisation noted from Q4’22 to Q4’23.

After a thorough analysis of major public health insurance companies, excluding Administrative Services Only (ASO) and foreign insurance businesses, Oliver Wyman saw stable profit margins from the second quarter (Q2’23) to the third quarter (Q3’23) of 2023. 

However, significant divergences emerged in Q4’23, with notable fluctuations in profit margins. 

Elevance experienced a 1.1% drop, mainly due to increased benefit expenses. UnitedHealthcare's margin decreased by 0.6% due to higher medical costs, whilst CVS Health (Aetna) saw the largest decline at 2.4%, driven by increased healthcare and operating expenses. 

Cigna was the sole company to improve its margin by 4.1%, attributed to a low tax rate from deferred tax benefits, notably from the sale of its Medicare Advantage business. 

The unweighted average profit margin rose to 5.1%, a 0.1% increase from Q3 2023 and 1.5% higher than Q4 2022.

In terms of medical loss ratios, all four major companies saw an average increase of 2.4% from Q3’23 to Q4’23. 

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Notably, Elevance reported a loss ratio of 89.2%, CVS Health (Aetna) at 88.5%, UnitedHealthcare at 85%, and Cigna at 82.2%. 

The unweighted average loss ratio for Q4’23 slightly rose to 86.2% from 85.5% in Q4’22. 

Operating expense ratios remained relatively stable, with an overall decrease of 0.2% from Q3 to Q4 2023.

In Q4’23, Medicaid membership declined by 4.3% from Q3’23, attributed to ongoing redetermination of eligibility. 

However, total Medicaid enrollment remains approximately 31% higher than pre-pandemic levels. Conversely, Commercial membership increased by approximately 0.5% over Q3’23, as some individuals shifted from Medicaid to Commercial coverage.

From Q4’20 to Q4’23, the collective market capitalisation of seven tracked public healthcare companies grew by 33%, outpacing the S&P 500's growth of 27% during the same period. 

However, there was a noticeable decrease in market capitalisation from Q4’22 to Q4’23, with a 7% drop for the seven public companies compared to a 24.2% increase for the S&P 500.