Jane Dotson
Medicaid health plans have been criticised for making billions of dollars in profits at the expense of taxpayers. However, the profitability of commercial health insurance is 2.5–6 times higher than that of Medicaid health insurance. In 2018, Medicaid health plans generated an average underwriting margin of 0.6%, making around 60 cents for every $100 in premiums. While Medicaid health plans do make billions in profits, their profitability, measured in terms of operating margin, is much lower compared to other reputable companies and health insurance companies. More than two-thirds of Medicaid recipients are enrolled in privately run Medicaid managed care programs, but there is little evidence that these contractors improve patient care or save government money.
| Characteristics | Values |
|---|---|
| Medicaid health plans' profitability | 2.5–6 times lower than commercial health insurance |
| Operating margin | 0.6% |
| Profit per $100 in premiums | $0.60 |
| Federal government's share of Medicaid spending | 69% ($606 billion) |
| States' share of Medicaid spending | 31% ($274 billion) |
| Medicaid's share of federal outlays | 8% |
| Medicaid's share of health care spending | 19% |
| Medicaid's share of hospital spending | 19% |
| Medicaid's share of federal health program spending | 33% |
| Medicaid enrollment and spending | Increase during recessions |
| Top US insurers' revenue from Medicare and Medicaid | 60% |
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What You'll Learn
- Medicaid health plans make billions in profit, but their profitability is lower than that of their competitors
- Operating margin is a common measure of corporate profitability, and Medicaid health plans generated an average of 0.6% in 2018
- Private insurers running Medicaid plans receive billions in tax dollars with little oversight
- Medicaid and Medicare enrollment in the top five US insurers grew from 12.8 million to 25.5 million from 2010 to 2016
- Medicaid health plans are criticized for making billions at the expense of taxpayers and the poor
Medicaid health plans make billions in profit, but their profitability is lower than that of their competitors
Medicaid health plans have been criticized for making billions of dollars in profits at the expense of taxpayers and the indigent population. However, the profitability of these companies is much lower than that of their competitors when measured in terms of operating margin.
A common measure of corporate profitability is the operating margin, which is the amount of profit a company makes as a percentage of sales after all expenses are paid. The operating margin is a better measure of profitability than absolute profit dollars because it is measured as a percentage of sales, which normalizes the differences in the costs incurred by the companies to generate these profits. For a health insurance company, this is called an underwriting margin, defined as profitability on insurance premiums after all expenses to underwrite the premiums are paid.
According to an annual study conducted by Millman, Medicaid health plans generated an average underwriting margin of 0.5%–2.5% in 2018, and had generally stayed within this range over the past 10 years. This means that the plans made around 60 cents for every $100 in premiums that they underwrote in 2018. In contrast, commercial health insurance companies generate a 3.4% margin in the individual and small group markets, and a 1.5% margin in the large group market. This means that the profitability of commercial health insurance is approximately 2.5–6 times higher than that of Medicaid health insurance.
To put this in perspective, Google and Apple both generate an operating margin of approximately 25%. In other words, for every $100 in revenue, these tech giants make $25 in profit, while Medicaid health plans make only 60 cents, a difference of almost 42 times.
While Medicaid health plans do generate profits, their profitability, measured in terms of operating margin, is much lower compared to both their peers in the health insurance industry and other reputable companies.
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Operating margin is a common measure of corporate profitability, and Medicaid health plans generated an average of 0.6% in 2018
A common measure of corporate profitability is the operating margin, which is the amount of profit a company makes as a percentage of sales after all expenses are paid. Operating margin is a better metric than the dollar value of profits because it accounts for the differences in costs incurred by companies to generate these profits. In the context of health insurance, this is called an underwriting margin, which is the profitability on insurance premiums after all expenses to underwrite the premiums are paid.
According to an annual study conducted by Millman, Medicaid health plans generated an average underwriting margin of 0.6% in 2018, which means that the plans made around 60 cents for every $100 in premiums that they underwrote in 2018. This average of 0.6% is a reasonable profit margin, even though it is generated from taxpayer dollars, because the industry is risky, with over 1/3 of participants risking losing money in any given year.
While Medicaid health plans do make billions of dollars in profits, their profitability, measured in terms of operating margin, is much lower compared to both their peers in health insurance and other reputable companies like Google and Apple. For instance, Google and Apple both generate an operating margin of approximately 25%, which is almost 42 times higher than that of Medicaid health plans.
The profitability of commercial health insurance is approximately 2.5–6 times higher than that of Medicaid health insurance. However, it is important to note that there is wide variability at the individual health plan level. According to Millman, 35% (62 out of 118) of health plans in the study lost money in 2018.
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Private insurers running Medicaid plans receive billions in tax dollars with little oversight
Private insurers running Medicaid plans have been criticised for making billions of dollars in profits at the expense of taxpayers. In 2018, Medicaid health plans generated an average underwriting margin of 0.6%, which is much lower than that of their peers in the health insurance industry. However, this still amounts to significant profits when considering the large sums of money involved. For example, states funnelled nearly $300 billion to Medicaid insurers in 2018, up from $60 billion a decade ago.
The expansion of Medicaid under the Affordable Care Act (ACA) has resulted in 12 million more people enrolling in the program, and 38 states now outsource the management of this public program to insurers. This shift has been criticised for lacking oversight, with many concluding that Medicaid insurers fail to account for the dollars spent, deliver necessary care, or provide access to a sufficient number of doctors. For instance, a federal inspector general's report in 2018 accused Medicaid insurers of intentionally ignoring fraud and overpayments to doctors. Similarly, auditors in Illinois found that the state didn't properly monitor $7 billion paid to Medicaid plans in 2016, making it challenging to determine how much of the money went to medical care versus administrative costs or profit.
The profitability of Medicaid health plans has also been scrutinised, with critics arguing that the focus should be on the operating margin rather than absolute profit dollars. The operating margin, which measures profitability as a percentage of sales, provides a more standardised comparison across companies. While the underwriting margin for Medicaid health plans was 0.6% in 2018, it is worth noting that this figure has fluctuated over the years, ranging from 0.5% to 2.5% in the past decade.
The debate around Medicaid spending and insurer profits is complex, with various stakeholders holding differing views. While some argue for reducing spending and cutting budgets, others warn against the potential negative consequences of such actions, especially for low-income Americans who rely on the program. The impact of any changes to Medicaid will be far-reaching, affecting not only patients but also taxpayers, healthcare providers, and insurers.
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Medicaid and Medicare enrollment in the top five US insurers grew from 12.8 million to 25.5 million from 2010 to 2016
Medicaid and Medicare enrollment in the top five US insurers more than doubled from 2010 to 2016, growing from 12.8 million to 25.5 million enrollees. These five companies, UnitedHealthCare, Anthem, Aetna, Cigna, and Humana, saw their health care revenues increase from $92.5 billion in 2010 to $213.1 billion in 2016. This growth in revenue is attributed to the increase in Medicaid and Medicare enrollment, which accounted for nearly 60% of their health care revenues in 2016.
While the top five insurers have maintained profitability through their Medicaid and Medicare enrollment growth, some have chosen to leave the ACA marketplaces in certain states. This decision highlights the importance of these public coverage programs in ensuring the financial stability of insurance companies. Despite the overall growth in enrollment, the ACA marketplaces face uncertainty due to varying levels of insurer participation across states.
Medicaid health plans have been criticized for their profitability, with some arguing that they make excessive profits at the expense of taxpayers and the indigent population. However, it's important to consider that the operating margin, or the underwriting margin for insurance companies, is a more accurate measure of profitability than absolute profit dollars. Medicaid health plans generated an average underwriting margin of 0.6% in 2018, translating to 60 cents for every $100 in premiums. This profitability is significantly lower than that of commercial health insurance and other industries.
Medicaid plays a crucial role in providing access to care for low-income individuals. Research shows that Medicaid beneficiaries have better access to care than the uninsured and are less likely to postpone or forgo needed treatment due to cost. Additionally, Medicaid is the primary payer for long-term care in the US, covering 61% of total spending. It also covers services beyond what is typically offered by health insurance, such as non-emergency medical transportation and comprehensive benefits for children.
Medicaid enrollment tends to increase during economic downturns, as more people become eligible and enroll. The recent pandemic-induced recession led to a significant increase in enrollment, contributing to historic growth. Additionally, factors such as low per capita income and the adoption of the ACA expansion have influenced the federal share of Medicaid spending across states.
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Medicaid health plans are criticized for making billions at the expense of taxpayers and the poor
Medicaid health plans have been criticized for making billions in profits at the expense of taxpayers and the poor. However, it is important to note that the profitability of these plans is significantly lower than that of their peers in the health insurance industry. While Medicaid health plans generated an average underwriting margin of 0.6% in 2018, with 35% of plans losing money, their commercial health insurance counterparts have a profitability that is 2.5 to 6 times higher.
Medicaid is a popular program that covers a broad range of low- and moderate-income people, including children, adults with low incomes, seniors, and people with disabilities. It is the largest shared state-federal program, with nearly two-thirds of overall state expenditures coming from federal dollars. In FFY 2023, Medicaid spending totaled $880 billion, with the federal government paying 69% and states paying 31%.
Despite the program's popularity and impact, some Republican lawmakers have proposed deep cuts to Medicaid spending to offset the cost of tax cuts for the wealthy. These cuts would directly reduce the number of people who receive Medicaid, leading to worse health outcomes, greater costs for hospital systems, and strained state and local economies. Additionally, proposals to increase the frequency of eligibility checks and add more paperwork requirements would make it harder for eligible people to access and retain Medicaid coverage.
While the focus is often on the absolute profit dollars, it is important to consider other measures of profitability, such as operating margin, which is the amount of profit as a percentage of sales after all expenses. Medicaid health plans have a low operating margin compared to other industries, and if this margin is lowered too much, they may exit the market. Therefore, while criticism of Medicaid health plans' profits is understandable, it is crucial to consider the broader context of profitability and the potential impact of reducing this already low operating margin.
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Frequently asked questions
In 2016, the top five insurers in the United States made $213.1 billion from Medicare and Medicaid plans.
Medicaid health plans are often criticised for making too much money at the expense of taxpayers. However, the profitability of commercial health insurance is 2.5 to 6 times higher than that of Medicaid health insurance. In 2018, Medicaid health plans generated an average underwriting margin of 0.6%.
Insurance companies receive a fixed fee from the government for each person they insure through Medicaid.
There is little evidence that insurance companies save the government money. Auditors, lawmakers and regulators have concluded that Medicaid insurers fail to account for the dollars spent, deliver necessary care or provide access to a sufficient number of doctors.
