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, for example, the State Health Benefits Plan. 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. As a consequence, only about a quarter of New Jersey’s population received coverage from this regulated commercial market. 

The regulated commercial market (large group, small group, and individual) covered approximately 2,320,000 people in 2007, with total premium of $9.4 billion, up only slightly from $9.1 billion in 2006. The number of people covered in this market decreased by about 80,000 from 2006. (These people did not necessarily lose coverage; they may have moved to private self-funded or government programs.)  

The average premium per covered person increased by about 6%, from $318 a month in 2006 to $336 a month in 2007.  (6% was the approximate increase from 2005 to 2006 as well). An increase that is less than medical trend (more in the 8% -10% range) is due to a number of factors discussed below. Total claims were $7.9 billion, for a medical loss ratio (MLR) of 84.3% (higher than the 81.3% in 2006 and 81.6% of 2005). However, much of this increase can be explained by the increase for Horizon BCBS, the largest carrier, which had a loss ratio of 85.0% in 2006 and 88.2% in 2007.   

The three largest carriers (with market share measured by enrollment) were Horizon (47. 6%, up from 40.6% in 2006 and 34.3% in 2005), Aetna (21.0% down from 24.4% in 2006 and 26.3% in 2005) and United/Oxford (15.1% down from 17.1% in 2006 and 19.0% in 2005). AmeriHealth (6.4%), CIGNA (4.9%) Health Net (4.0%) and are the other significant carriers. Market share varies by market segment (large group, small group, individual) and location.

Source of Coverage

Attachment 1, Source of Coverage

According to the Current Population Survey (CPS) of the US Census Bureau, 5.5 million (or 64%) of the 8.6 million residents of New Jersey received coverage through employment, either as an employee or a dependent. (The 5.5 million excludes about 400,000 people over 65 who also are covered by Medicare, and about 100,000 people who are also covered by Medicaid.) Other major sources of coverage are Medicare with 1 million (including the 400,000 mentioned) or 13%, Medicaid and Family Care, 980,000 (including at least the 100,000 mentioned) or 13%, and the State Health Benefits Plan (State employees and some local and education employees) 800,000 or 9%. 

Of the 5.5 million people with employer provided coverage, 2.3 million are covered by programs regulated by DOBI: 890,000 in the small employer program, and the remainder (about 1.4 million) in coverage provided by large employers.

The remaining 3.2 million are covered by self-funded programs, such as state health benefits (800,000) and private self-funded coverage (2.4 million). 

Other programs have a much smaller impact, including individual coverage through the IHC program (about 90,000), military coverage (about 100,000) and student coverage (about 50,000). Enrollment adds to more than 8.6 million and percentages add to more than 100% due to multiple sources of 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. 

Attachment 2, Market Share

Market share can be measured as a percentage of enrollment or a percentage of premium. The attachment shows both. 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 2.3 million people with premiums of $9.4 billion in 2007. The three largest carriers (with market share by enrollment) were Horizon (47.6%) Aetna (21.0%) and United/Oxford (15.1%). The next three largest carriers AmeriHealth, CIGNA, and Health Net, all had market share between 4% and 7%. The remaining carriers all have market share less than 1%. 

Horizon is the largest carrier in the large group segment with 51.2% (45.8% in 2006), followed by Aetna with 18.8% (18.4% in 2006) and Oxford/United with 12.4% (15.2% in 2006). CIGNA has 7.5% and AmeriHealth 6.2%. Many groups in this market are partially or fully experience rated; their rates depend on the groups’ actual claims experience. Such groups, especially the larger ones, may have the option of self-funding and removing themselves from the regulated commercial market.

In the small group segment, Horizon at 40.7% (30.5% in 2006) Aetna at 26.0% (33.5% in 2006), United/Oxford at 18.1% (19.2 in 2006) are the three largest carriers. AmeriHealth and Health Net each have market share of 6.7%. CIGNA has 1.4%.

The four largest carriers in the individual (IHC) segment are Horizon at 62.7% (60.2% in 2006), United/Oxford at 26.2% (23.1% in 2006), AmeriHealth at 5.9% (5.3% in 2006), and Aetna at 4.4% ( 9.4% in 2006). The IHC market includes Indemnity Plans,  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.   

Attachment 3, Loss Ratios

The (Medical) Loss Ratio is the ratio of claims (medical benefits) incurred to premiums earned. Provider claims do not include claims administration expenses or expenses associated with loss control (such as utilization management). However, they do include administrative costs incurred by providers or vendor intermediaries, such as Organized Delivery Systems (ODS’s). The medical loss ratio measures accuracy of pricing (when compared to the carrier’s anticipated loss ratio) and efficiency (when compared to norms). 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 84.3% loss ratio in 2007 was significantly higher than the 81.5% loss ratio in 2006 and 81.7% loss ratio in 2005. However, some of this increase can be attributed to the pricing actions of the largest carrier, Horizon BCBS.  Horizon’s loss ratio for 2007 was 88.0%, up from 85.0%in 2006 and 83.6% in 2005. This appears to be a business decision by Horizon.  

The 2007 average loss ratio in the large group segment was 84.3%. Among carriers with premium volume of $100 mm or more in the large group market, the loss ratio ranged from a low of 74.4% to a high of 95.5%. This is a significant variation. 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. 

The average loss ratio in the small group market was 84.4% (up significantly from 81.8% in 2006).  Horizon BCBS, with a loss ratio of 90.1%, was a factor in this increase.
Among carriers with premium of $100 mm or more, loss ratios ranged from a low of 76.1% to a high of 90.1%. 

The average loss ratio is the individual market was 83.0% up slightly from 81.9% in 2006.  Loss ratios for the 4 major carriers ranged from a low of 72.4% to a high of 110.8%. The loss ratios in the Individual Market show the growth of the Basic and Essential products, which now account for approximately a third of the IHC market enrollment. 

Based on the premium and enrollment in the market share report, the average premium per covered person in the commercial market was $4,035 or $336 per month. This does not reflect the entire cost of 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, (which could be 20% to 30% higher). The monthly cost of $336 is an increase of about 6% from the 2006 average.

The average annual premium was $4,117 ($343 a month) in the large group market and $3,853 ($321 a month) in the small group market. This does not necessarily imply that the small groups are cheaper to insure than large groups. Small groups tend to choose less expensive coverage options. For example, small groups are more likely to choose closed panel HMO coverage, which tends to be less expensive than coverage providing for out-of-network benefits. Small groups may also have bigger per visit copays or deductibles.

The average large group premium increased by 8.9%, from $315 a month to $343 a month. This increase, which is close to medical trend, is higher than we would expect.

The average small group premium increased by 2.6% from $313 to $321 a month.  Because small group and large group are subjected to most of the same medical trends, we think this represents a continuing shift to higher cost sharing and a greater degree of care management in the small group market. It could also represent the increasing market share of Horizon, which is generally less expensive than other carriers.

The average premium in the individual market was $4,638 ($387 a month). This represented a decrease of about 8% from $420 a month in 2006. This largely represents the increase in B&E enrollment, as well as a shift in standard plan enrollment from indemnity plans to less expensive HMO and PPO plans.   

The Department monitors source of coverage, market share, loss ratios, and average premiums in the commercial market.  Somewhat less formally, we monitor underwriting profits. Along with total enrollment, average premium, and premium increases, these are measures of the performance of the commercial insurance system.