3 Takeaways from Payers' Q2 Earnings Reports

Most major health insurers are so far experiencing positive results in the face of unknowns.

The largest payers continued to see profits in the second quarter, despite concerns of increased utilization.

Familiar names were at the top of the charts, with UnitedHealth Group paving the way at $5.5 billion in profit, followed by CVS Health at $1.9 billion.

Not unlike their counterparts on the provider side, health insurers this year have had to maneuver through their own set of issues, although as their second quarter earnings reports showed, it hasn't hurt the bottom line much.

Here are three takeaways from the second quarter:

Utilization is up, but not alarmingly so

Insurers were already bracing for utilization to go up from deferred services as a result of the COVID-19 pandemic.

Those fears, the second quarter indicated, were not unfounded, but they weren't fully borne out either.

Some of the medical loss ratios experienced by payers were 83.2% for UnitedHealth, 86.2% for CVS, 86.3% for Humana, and 81.2% for Cigna. While the figures were on the higher end compared to recent quarters, they were mostly manageable.

Where utilization has especially increased is in outpatient settings as patients begin to seek out care they delayed during the pandemic.

"Bottom line, I don't really think the benefits are driving this," UnitedHealth Group CEO Andrew Witty told investors. "When you look at the concentration of what we're seeing in terms of the outpatients, the orthopedics, in particular, those sorts of areas, it looks very much more like a kind of deferment of care."

CVS also reported utilization increase in outpatient settings, particularly on the Medicare Advantage (MA) side.

Fallen star ratings

Speaking of MA, payers projected realistic outlooks for their star ratings, which have taken a hit across the board in 2023.

Cetene CEO Sarah London told investors that the insurer anticipates losing its only four-star MA contract—plans with at least four out of five star qualify for bonus payments that can be used to offer supplemental benefits.

"While this is disappointing, we do expect to see meaningful movement in our three- and 3.5-star plans in October, and roughly two-thirds of our members are in plans showing year-over-year improvement," London said.

Humana, meanwhile, expressed confidence in their position and reported significant improvement in star ratings for CenterWell Home Health, with the percent of its branches with 4.5 stars or above increasing from 18% in January to 50% in the second quarter.

Bonus payments have been a boon for MA insurers, with KFF estimating qualifying plans will collect at least $12.8 billion in bonus payments this year—an increase of 30% from 2022.

MA payers are working to account for CMS' adjusted methodology for star ratings to continue bringing in the payments.

Medicaid not redetermining expectations

The ongoing Medicaid redetermination process is creating a potential drain in membership, but insurers have so far conveyed cautious optimism that it won't be too detrimental.

Elevance Health president and CEO Gail Boudreaux said she was encouraged that Medicaid members losing coverage are transitioning into Affordable Care Act exchange plans. The insurer reported a loss of 135,000 Medicaid members in the quarter, but managed a net income increase of 13.2% year-over-year.

"It's still early in the process, and our expectations for coverage transitions remain unchanged," Boudreaux said on an earnings call.

For Centene, Marketplace membership grew to 3,295,200, up from 2,033,300 over the same period in 2022, while the Medicaid business increased to 16,059,600, compared to 15,446,000 year-over-year.

London said the performances of both sectors are "running slightly ahead of expectation."