Health insurance enrollment and revenue shifts 2013-2014An emerging story

McKinsey Center for U.S. Health System Reform

By enrollment By revenue

2013100% = 230 million

2014100% = 247 million

Percentage shareof enrollment

Medicare Part C, D Small Group (SG)1

22

716

5

9

41

19

7

20

7

7

40

Percentage share of revenue from premiums

2013100% = $641 billion

3328

19

512

3

Absolute enrollment and revenue have also grown, by 17 million lives and $86 billion, respectively

2014100% = $743 billion

29

327

710 24

Change in enrollment (millions) Change in revenue ($ billions)

2013 – 2014

2302

2013 Mcare Part C, D

2013 – 2014

641

2013 Mcare Part C, D

Share of payors' aggregate enrollment and revenue in Medicaid and the Individual market has grown

16

10 247

Mngd Mcaid

Ind SG1 2014

4

ASOLG1

2

5

Mngd Mcaid

Ind SG1 2014ASO2LG1

57

22

4

733

2<1

6

Managed Medicaid IndividualLarge Group (LG)1 Administrative Services Only (ASO)2

Health insurance enrollment and revenue shifts 2013-2014 | Page 1 of 2

Year 1 financials: the Individual market

Although Individual market revenues have grown, payors lost $2.5 billionin 2014 there, after reinsurance and risk adjustment

All findings based on publicly available sources.

For enrollment and revenue shifts: Estimated enrollment is based on the following sources: CMS enrollment reports (Medicare); NAIC financials, IRS 990 reports, select state websites, DMHC reports (Medicaid); NAIC financials, DMHC reports (Individual, Small Group, Large Group); Kaiser (ASO). Estimated revenues, based on McKinsey Payor Financial Database, which includes NAIC financials of SHCE filings, DMHC filings, IRS 990 forms, DMHC financials, select state websites.

For year 1 financials: We analyzed all available 2014 Supplemental Healthcare Exhibits filed by payors for their Individual medical insurance business (comprising 92% of payors). Profitability is based on reported post-tax margin adjusted for the difference between reinsurance and risk adjustment (as booked at the end of 2014) and CMS reported reinsurance and risk adjustment payments as of 06/30/2015, assuming a corporate tax rate of 35%. Risk adjustment bookings were attributed to the Individual line of business based on relative proportion of reported member months. The effect of risk corridors were not included as carrier-specific risk corridor data has not yet been released.

2014 Individual market post-2R operating gain/loss3

‑$2.5BEstimated market-wide loss ‑$163

McKinsey Center for U.S. Health System Reform

Estimated full year loss per member

2014 performance in the Individual market varied among payors —most lost money, but ~35% made money

29

05375

1024

36

Enrollees, %

418

2328

158

229Payors, %

Loss >$50M

Loss$40 – 50M

Loss$30 –40M

Loss$20 – 30M

Loss$10 –20M

Loss$0 – 10M

Gain$0 – 10M

Gain$10 – 20M

Gain$20 – 40M

Gain$40M+

2 Self-insured of all employer sizes; excludes stop loss revenue

Methodology

1 Fully insured only

3 Includes ACA compliant (on and off exchange) and non-ACA compliant plans

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Health insurance enrollment and revenue shifts 2013-2014An emerging story continued

Health insurance enrollment and revenue shifts 2013-2014 | Page 2 of 2

McKinsey Center for U.S. Health System Reform