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The Commercial Health Insurance Market in Utah

Utah's Commercial Health Insurance Market

Commercial insurers are companies in the business of managing risk. They accept the risk of loss to individuals or organizations in exchange for a premium. In doing so, the risk of loss is shared (or pooled) so that any one individual does not bear all the risk of loss.

Insurance companies report financial data to the Insurance Department and the National Association of Insurance Commissioners (NAIC) on the health insurance business written in Utah. Health insurance premium data includes premiums from individual and group policyholders and from government sponsored programs such as Medicare and Medicaid. The premium reported does not include fees paid to insurers for administration of self-funded health benefit plans.

One measure of a commercial insurer's financial health is the ratio of incurred losses to premiums earned. This ratio is called a loss ratio. A ratio of less than 100 indicates that an insurance company received more premium income than it paid out in claims. A ratio of more than 100 indicates that a company paid more in claims than it received in premium income. While the benchmarks vary depending on the type of insurance, commercial health insurers generally try to maintain a loss ratio of less than 85 (85 cents of losses for every dollar of premium). If the loss ratio increases much beyond 85, an insurer may have more expenses than income and suffer a financial loss.

Commercial Health Insurance Market Overview

Among commercial health insurers there is a broad universe of "health insurance" products. Commercial health insurance may include comprehensive health insurance, as well as insurance products that cover a specialized category such as long-term care, dental, vision, disability, accident, specified disease, or as a supplement to other kinds of health benefit plans.

There were 1,441 commercial insurers licensed with the Insurance Department at the end of 2007. Of these, three hundred and fifty-one commercial insurers reported commercial health insurance business in Utah on their 2007 annual financial statements. These insurers represent a of the commercial health insurance sold in Utah. Each commercial insurer reported direct premium and losses in Utah, as well as total revenue and net income for their company.

Utah's commercial health insurance market is highly concentrated among nine commercial health insurers, which represen nearly 69 percent of the market. As a group, Utah's commercial health insurers had a loss ratio of 80 and net income of 6.52 percent While looking at the loss ratio does give an accurate view of Utah's commercial health insurance market, net income (at this level) does not. In this case, net income is not a good measure of the financial health of Utah's market as less than one percent of total revenues reported were in Utah. A more accurate view is obtained by looking at state of domicile.

Domestic insurers have a home office in Utah. Foreign insurers have a home office in another state. Approximately 71 percent of Utah's commercial health insurance market is domestic. These 23 domestic insurers are much more representative of the Utah market as more than 70 percent of their total revenue comes from Utah business. Thus, their loss ratios and net income are a much more accurate measure of the Utah market. As a group, domestic insurers had a loss ratio of 83 and net income of 1.77 percent. Nine commercial health insurers represent approximately 97 percent of Utah's domestic market. The remaining three percent of the domestic market consists of life insurers and limited health plans.

There are 328 foreign insurers in Utah's commercial health insurance market, most of which are life insurers. These foreign insurers account for approximately 29 percent of Utah's market. Foreign insurers had a loss ratio of 73 for Utah business. Net income was 6.55 percent, but a negligible amount of total revenue (just over 0.01 percent) was from Utah business and is, therefore, not representative of Utah. Overall, foreign insurers have a small presence in Utah's health insurance market.

Commercial Health Insurance Market by Policy Type

Financial statement data is designed to measure the financial solvency of commercial insurers. As such, it is not designed to provide detailed information on a particular type of insurance. To compensate for this, Utah's commercial health insurers are required to participate in the Utah Accident & Health Survey. This survey collects data about the various types of health insurance in greater detail than the annual statement. Data was collected from 351 commercial health insurers who reported accident & health premium in Utah for 2007.

The top three policy types by market share were comprehensive health insurance (61 percent), Medicare Advantage products (10 percent), and the Federal Employee Health Benefit Plan (FEHBP) (8 percent). The results of the survey differ slightly from the total accident & health reported on the 2007 annual statement. However, the difference is small. The net difference in total reported direct earned premium is less than 0.01 percent.