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. (1)

The commercial health market does not include self-funded coverage provided by larger corporations, labor unions, or governments. It also does not include government programs such as Medicare, Medicaid, or coverage for military or civilian Federal employees, or private coverage such as Medicare Supplement and Medicare Advantage which supplements or is an alternative to traditional Medicare. 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 $8.95 billion in 2005. Total claims paid were $7.31 billion, for a medical loss ratio of 81.7%. As discussed below, the loss ratio varies by market segment and carrier.

The three largest carriers in the New Jersey commercial market are Horizon, Aetna, and United/Oxford. Of the 2.5 million insured, Horizon covers about 850,000, (about one-third), Aetna covers about 650,000 ( about one-fourth), and United Oxford about 470,000 (about one fifth). AmeriHealth, Health Net, and CIGNA each have between 5% and 7% of the market and no other carrier has more than 1% of the market. Market share varies by market segment and location.

The Department estimates that, in 2005, the 5 largest carriers had combined underwriting gains, in the commercial market only, of approximately $315 million, or 4.0% of commercial premium. There was variation among carriers, but the average gain as a percentage of premium was 4.7% for large group, 3.2% for small group, and 1.4% 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 such as Medicaid, Medicare Supplement or Medicare Advantage.

Source of Coverage

Attachment 1, Source of Coverage, summarizes the source of comprehensive coverage for the population of New Jersey. Approximately 2.2 million people (25 % of the population) have their coverage through the regulated health coverage market. (This differs from the 2.5 million primarily because it excludes employees who are also eligible for Medicare.) Of this 2.2 million, approximately 920,000 had coverage through the SEH (small employer market) and another 77,000 through the individual market, withthe rest receiving coverage through large employers or other groups. Another 2.3 million (26%) are estimated to receive self-funded coverage from private employer or union plans. 2.9 million (33%) 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. The method of estimating source of coverage changed between 2004 and 2005. The revised estimate for 2004 is Attachment IA.

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 market segments (large group, small group, and individual) have distinctive characteristics, market share by segment is more meaningful than overall market share. Market share is shown on an affiliated basis; affiliated companies generally offer complementary products rather than competing. This report ignores the smallest carriers in the market, as well as carriers covering only college and other students.

As noted above, the commercial market covered 2.5 million people with premiums of $8.95 billion in 2005. The three largest carriers (with market share by enrollment) were Horizon (34.3%), Aetna (26.3%) and United/Oxford (19.0%). The next three largest carriers, Health Net, AmeriHealth, and CIGNA all have market share between 5% and 7%. The remaining carriers all have market share less than 1%.

Horizon is the largest carrier in the large group segment with 38.5%, followed by Aetna (19.1%) and Oxford (19.0%). 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; their rates depend on the group,s actual claims experience. Such groups may have the option of self-funding and removing themselves from the regulated commercial market.

In the small group segment, Aetna (39.3%), Horizon (25.5%), United/Oxford (18.5%) are the three largest carriers. Health Net has market share of 9.3% and AmeriHealth has market share of 5.3% .

The four largest carriers in the individual market are Horizon (59.0%), United/Oxford (20.8%), Aetna (12.0%), and AmeriHealth (5.7%). The IHC market includes Indemnity Plans(almost all Horizon), Managed Care (HMO and PPO) and Basic and Essential (B&E) plans. The structure of the IHC market has changed since 2004 due to the introduction of B&E plans with riders, leading to increasing enrollment in the B&E segment.

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 81.7% loss ratio in 2005 was a bit lower than the 82.5% average for 2004. 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 2005 average loss ratio in the large group segment was 81.7%. Among the 10 largest carriers by premium volume, the loss ratio ranged from a low of 75.4% to a high of 88.1%. This variation is based largely on two things – variation among companies in target loss ratio (the loss ratio they hope to achieve, considering administrative costs and intended profit) and variation among companies in actual experience. Also, these results are prior to reinsurance. Carriers can use reinsurance to reduce the variation in financial results.

The average loss ratio in the small group market was 81.4%. (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 83.4%.

The average loss ratio is the individual market was 85.1%, up from 81.8% in 2004. . (Some of the smallest companies were excluded from the study). In the individual market, loss ratios ranged from 75.1% to 95.9%. There are several reasons for the greater variation in loss ratios in the Individual Market, including generally smaller groups of covered lives, and the impact of individual selection in a guaranteed insurability market.

Based on the premium and enrollment in the market share report, the average premium per covered person in the commercial market was $3,609 or $300 per month. Remember that this does not reflect the entire of cost covered medical care, because, in addition to the premium, the covered person is responsible for deductibles, coinsurance, and copayments. Also, dependent children are included in this average. Their costs tend to be lower than average, so this premium should not be seen as the average cost of insuring a single adult (perhaps 30% higher in the commercial market).

The average was $3,603 in the large group market and $3,524 in the small group market. This does not necessarily say that the markets are similar in the risk presented, because small group contracts may have more cost-sharing, so a lower level of insured benefit, than large group. (Small group also has a larger percentage of closed panel HMO coverage, which tends to be less expensive than coverage providing for out of network benefits.) The average premium in the individual market is $4,744, which reflects the high average age and adverse selection of this market.