Just over a quarter of the potential pool for small business health insurance has been penetrated by the industry, and that number appears to be declining. But that also means there's new opportunity for carriers seeking small business health insurance clients may be just around the corner.
A study by Mark Farrah Associates reviewed public data on small businesses and found that the vast majority don't offer coverage to employees. Farrah said that small groups with health insurance policies fell from 1.546 million in 2012 to 1.453 in 2013, a decline of about 93,000. "Nonetheless, this sizeable market remains an attractive business target for commercial health insurers," Farrah noted.
One cause for optimism: The Small Business Health Options Program, or SHOP. This should have launched last fall when the public exchanges opened, but its opening was delayed until this November. Farrah called SHOP "a potential game-changer in the small group market."
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"The SHOP will allow business owners and or administrators to control the coverage level as well as the amount they pay toward coverage for their employees," Farrrah said. "In some cases they can benefit from a tax credit worth up to 50 percent on the amount they apply toward coverage depending on eligibility. Tax credits are highest for small businesses with 10 employees or less and whose full-time employees make less than $25,000; about half of the small businesses in America have 10 or fewer full-time employees."
But there could also be a cloud on the horizon for small group carriers.
"Health insurers are keeping an eye on health reform results, attempting to gauge how regulatory changes will affect market composition. It is difficult to anticipate how many more small employers will opt out of providing health policies in light of emerging public exchanges," Farrah said.
The Farrah analysis also looked at the companies most engaged in selling health coverage to small businesses. UnitedHealth, WellPoint and Health Care Service Corporation controlled 71 percent of segment profits.
"The combined 71 percent share of profits is notable considering these carriers account for only 33 percent of total covered lives in the small group market," Farrah said.
Five major carriers — UnitedHealth, WellPoint, Aetna, Humana and HCSC — own 49 percent of the total market, Farrah said.
"Collectively, [these five] provide coverage for more than 8 million people, … Combined market share for these top five carriers increased from 45 percent in 2012, due in large part to Aetna's acquisition of Coventry which ranked as the number 6 carrier in 2012."
Top performing underwriters based on overall financial performance were UnitedHealth Group, WellPoint and Health Care Service Corporation.
"These plans earned healthy returns on their aggregate small group book of business and the majority of their health plans met required medical loss ratios thresholds for 2013," Farrah said. "The Affordable Care Act requires that health insurance carriers submit medical loss ratios to Health and Human Services for review on an annual basis. Carriers must issue rebates to policyholders if MLR minimum standards are not met."
UnitedHealth Group plans collectively reported an underwriting gain of $831 million with a 7 percent profit margin in 2013 compared to 2012. WellPoint plans gained $505 million in 2013 compared to 2012, and also had a 7 percent profit margin. HCSC reported a 4 percent margin on its business.
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Dan Cook
Dan Cook is a journalist and communications consultant based in Portland, OR. During his journalism career he has been a reporter and editor for a variety of media companies, including American Lawyer Media, BusinessWeek, Newhouse Newspapers, Knight-Ridder, Time Inc., and Reuters. He specializes in health care and insurance related coverage for BenefitsPRO.
