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Medical cost ratio is a growing concern among health insurers

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In recent weeks, health insurers Centene Corp., UnitedHealth Group Inc., and Anthem Inc. released earnings. Two others, Molina Healthcare Inc. and Humana Inc., will report later this month. Among the worrisome trends discussed on their earnings calls is a growing medical cost ratio, or MCR, the percent of premium the insurer spends on claims and expenses that improves health care quality. It is sometimes referred to as a medical-loss ratio.

Following Anthem’s earnings announcement on July 23, its stock dropped by 6.4% after the close of trading, leading declines among insurers. Anthem also had the largest increase in its MCR from the same period in 2018.

While the stocks of these health insurers got hit with this news, shares of some of publicly traded health systems, by contrast, have seen their best week since November of 2016. Below is a chart of the Bloomberg Intelligence index of hospital chains (BRUSHOSV).

The takeaway for private health insurers

We would suggest that private health plans communicate with their boards and other stakeholders interested in their financial results about how their medical cost ratio trends compare to those of the large health insurers. Proactive benchmarking will help to level set expectations.

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About Rick Kes

@HealthCare_CPA

Rick has over a decade of experience providing audit and consultative services predominately to organizations in the health care industry. He has served a wide variety services for organizations ranging from large organizations with more than $12 billion in annual revenue to small, standalone entities with less than $1 million in annual revenue. Rick has served clients across the health care continuum including integrated health systems, physician groups, safety-net hospitals, health insurance clients, and other various health care related entities. Rick has experience in governmental, not for profit, and statutory accounting standards.

Rick has played a role on several due diligence engagements as a dedicated health care professional resource. In 2018, he was selected as a senior analyst in RSM’s cutting edge Industry Eminence Program, which positions its senior analysts to understand, forecast and communicate economic, business and technology trends shaping the industries RSM serves. These senior analysts advise clients on conditions impacting middle market leaders.

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