The commercial health market, as described in this report, consists of comprehensive (medical and hospital)  coverage that is issued by a regulated carrier (insurer, health service corporation, or HMO) in New Jersey and subject to New Jersey DOBI regulation.  The commercial health market does not include self-funded coverage provided by large corporations or governments.  It also does not include government programs such as Medicare, Medicaid, or coverage for military or civilian Federal employees.  It does not include  student coverage provided at colleges, universities, and other schools.  It also does not include coverages such as dental, disability income, or long term care.

The regulated commercial market (large group, small group, and individual) covered approximately 2.5 million people with total premium of $8.35 billion in 2004.  Total claims paid (including refunds in the SEH market) were $6.89 billion, for a medical loss ratio of 82.5%.  On a combined ownership basis, there were 12 carriers in this market with a market share of 0.1% or more.  Six of these carriers had market share of less than 1%.  Each of the remaining six carriers had market share of more than 5%.

The Department estimates that, in 2004, the 5 largest carriers had combined underwriting gains, in the commercial market only, of approximately $340 million, or 4.6% of commercial premium.  Although there was variation among carriers,  estimated profit margins were fairly consistent for each market segment – 4.8% for large group, 4.2% for small group, and 5.2% for individual. These estimated profit margins do not include the impact of investment gains or federal income tax, nor do they include gains or losses on other lines of business.

Source of Coverage

Attachment 1, Source of Coverage, summarizes the source, if any, of comprehensive coverage for the population of New Jersey.  Approximately 2.6 million people (30 % of the population) have coverage through the regulated health coverage market.  (This differs from the 2.5 million mentioned above because of the inclusion of student coverage and the distinction between covered New Jersey residents and people covered under New Jersey issued contracts.)  Of this 2.6 million, approximately 915,000 had coverage through the SEH (small employer market) and another  78,000 through the individual market, with the rest receiving coverage through large employers or other groups.  Another 2 million (25%) are estimated to receive self-funded coverage from private employer or union plans.  2.7 million (over 30%) have coverage from government plans, including Medicare, Medicaid, SHBP, or FEHBP.  (Insured and uninsured local government plans not part of the SHBP are included in the private market figures.)  1.3 million people (15%) were without coverage.

The Source of Coverage estimate must be taken as a rough approximation.  It is prepared from many sources, and is subject to misreporting of status, inconsistent treatment of out-of-state residents or contracts, and double-counting from multiple sources of coverage.  Self-funded coverage is probably under-reported, because someone with dual coverage (self-funded and insured) would generally be classified as covered by an insured plan.

Attachment 2, Market Share, measures concentration in the commercial health market.  Market share can be measured as a percentage of enrollment or a percentage of premium, and both are shown in the attachment.  We will generally use percentage of enrollment in summarizing the results.  Because the three submarkets are distinct, market share by submarket is more interesting than overall market share.  Market share is shown on a combined ownership basis; affiliated companies generally offer complementary products. This report ignores the smallest carriers in the market, as well as carriers covering college and other students.

As noted above, the commercial market covered 2.5 million people with premiums of $8.35 billion in 2004.  The three largest carriers (with market share) were Horizon (34.4%), Aetna (25.0%) and United/Oxford (17.6%).   Health Net, AmeriHealth, and CIGNA have market share between 5% and 10%, and the remaining carriers have market share less than 1%. 

Although this is not shown in the attachments, commercial market share by type of carrier is 52.9% for HMOs,  28.8% for one health service corporation,  and 18.4% for insurers. (numbers do not add due to rounding).  Because all three types of carriers can offer a similar product (POS plan with in and out network benefits) market share by type of carrier is not a significant indicator.

Horizon is the largest carrier in the large group market with 37.9%, followed by Aetna (18.5%) and Oxford (18.4%).  CIGNA, AmeriHealth, and Health Net each have between 5% and 10% of this market, and Guardian has about 1%.  Many groups in this market are partially or fully experience rated.  Such groups may have the option of self-funding.

In the small group market, Aetna (36.9%), Horizon (26.9%), United/Oxford (16.0%) and Health Net (12.1%) are the four largest carriers.  AmeriHealth has market share of 5.8% and CIGNA and Wellchoice each have shares of about 1%.

The four largest carriers in the individual market are Horizon (57.2%), United/Oxford (21.2%), Aetna (12.4%), and AmeriHealth (6.9%).  Health Net and CIGNA each have market share of approximately 1%.  The structure of the IHC market is complex, because Indemnity (almost all Horizon),  Managed Care (HMO and PPO) and Basic and Essential (B&E) are separate submarkets.  The structure of the IHC market has changed significantly since 2004 due to the introduction of B&E plans with riders.

The (Medical) Loss Ratio is the ratio of provider claims incurred to premiums earned.  Provider claims do not include claims administration expenses or expenses associated with loss control (such as utilization management).  The medical loss ratio measures accuracy of pricing and efficiency.  The complement (the loss ratio subtracted from 1) of the loss ratio is the percentage of premiums required to administer the system, including claim processing, producer commissions, taxes, and profits.

The average loss ratio for the commercial market is around 80%.  In recent years, it has gradually increased from just below 80% to above 80%.  The 82.5% average for 2004 was higher than recent years.  There is considerable variation among carriers and markets, with some carriers falling below the 75% minimum in the SEH or IHC markets.  In this case, refunds are required to bring the loss ratio to 75%. 

The average loss ratio in the large group market was 82.7%.  Among the 10 largest carriers by premium volume, the loss ratio ranged from a low of 71.6% to a high of 97.6%.  (These loss ratios were prior to the effect of any commercial reinsurance).

The average loss ratio in the small group market was 82.3%. (Some of the smallest companies were excluded from the study).  Among the 10 largest carriers, loss ratios ranged from a low of 75% (including refunds) to a high of 92.6%.

The average loss ratio is the individual market was 81.8%.  (Some of the smallest companies were excluded from the study).  In the individual market, loss ratios are monitored on an affiliated company basis.  They ranged from 72.2% to 97.7%.