insights into smb health insurance market - edifecs

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WHITE PAPER

Insights into the Small & Medium Health Insurance MarketMary SwaykusSenior Analyst, Product MarketingEdifecs

WP White Paper | Insights into the Small & Medium Health Insurance Market 2

AbstractAs the U.S. health insurance market continues to transform, there is a growing need to better understand the market landscape, its segments and its players. There is no shortage of studies and articles concerning the “large” business market, which includes payers like UnitedHealth, Humana, and Kaiser Permanente. Information on their market growth, consolidation and competition abounds. However, when it comes to Small and Medium businesses (SMB), little market research exists. While Large payers (defined herein as those covering 500K lives or more) cover roughly 292 million U.S. lives combined, they only represent 17% of the 493 health insurance businesses. Conversely, Small and Medium payers (defined herein as those with fewer than 50K lives and between 50K and 499K lives, respectively) represent 49% and 34% of this market, respectively. The goal of this paper is to provide some much-needed insights into the growth, consolidation and competitive landscape of the SMB market.

2018 U.S. Health Plans by Size

Size Plans PSHP Blues Total Lives

All Health Plans 493 100% 229 46% 44 9% 328,395,088

Large Health Plans > 500K 84 17% 13 15% 31 37% 291,995,777

Medium Health Plans 50 – 499K 169 34% 73 43% 13 8% 33,956,970

Small Health Plans < 49K 240 49% 143 60% 0 0% 2,442,341

SMB HEALTH PLANS < 500K 409 83% 216 53% 13 3% 36,399,311

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2018 U.S. Health Plans by Size

PSHP Plans Blues Plans Other Lives Covered (M)


SMB Market LandscapeDefining the SMB MarketAt the onset of my research, I sought to determine if any industry-standard health plan size classifications existed; perhaps a minimum number of lives covered or minimum total premiums earned to be categorized as medium or large. After exhaustive research and consultations with industry experts, I realized that no such taxonomy exists.

Therefore, for the purposes of my analysis, I have implemented my own criteria to segment the health plan businesses into “Small”, “Medium” and “Large” designations. For the unit of measure, I chose total health enrollment, defined by AIS as total number of enrollees in primary medical insurance plans or self-funded plans, having determined it would be the simplest and most uniform way to measure across plans. Determining the thresholds for each segment took both analysis and assumption. For the lower threshold, I segmented all plans into increments of 10,000 lives and counted how many fell into each bucket. I noticed that, after 50,000 lives, the number of plans in each 10K increment grew smaller. I used this as my barometer for segment competition and set 50,000 as the limit between Small and Medium businesses. For the Large segment, I established half a million lives as the threshold, having taken into consideration the amount of capital and human resources needed to manage so many lives.

Thus I segmented the 493 U.S. health insurances businesses into 240 Small (< 50,000 lives), 169 Medium (50,000 ≤ 499,999 lives) and 65 Large (≥ 500,000 lives). This paper will focus on the 409 Small and Medium Businesses (SMB) in the U.S. health insurance industry. For my analysis, I used Q1 2018 and Q1 2013 total health enrollment data sourced from the AIS Directory of Health Plans, a subscription-based database produced by AIS Health.

Ownership and ManagementWith a total of 409 companies, the SMB market is quite varied. There are some interesting observations when it comes to health plan ownership and management.

For example, Provider-Sponsored Health Plans (PSHPs) make up 53% of the SMB market. A provider-sponsored plan, sometimes referred to as a provider-led or provider-owned plan, is defined by AIS as a plan that is owned by or affiliated with a provider entity. Although not a new concept in the health insurance industry, the recent push toward value-based care and payment reform has had a significant impact on the creation of PSHPs1. In total, PSHPs comprise 46% of U.S. health plans, with 94% of them falling into the SMB market.

94% of Provider-Sponsored Health Plans cover fewer than 500K Lives

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PSHPs by Market

94% of Provider-Sponsored Health Plans cover fewer than 500K Lives

Small Medium Large

53%47%

PSHPs make up 53% of the SMB Market

PSHPs

Non-PSHPs

1 Provider-sponsored health plans: Positioned to win the health insurance market shift, Deloitte, 2015, pg. 1


Blue Cross Blue Shield plans comprise 3% of the SMB market, which seems small until you realize that BCBS plans only make up 9% of all U.S. health payers. There are 44 BCBS plans in the U.S. covering a total of 99.4 million lives, or 30% of all U.S. lives. Thirteen (30%) of these plans fall under the Medium designation and cover a total of 3.8 million (3.8%) BCBS lives.

The SMB market is overwhelmingly not-for-profit with 71% of payers claiming this status (an 18% increase from 2013). This is likely the result of the overall influx of PSHPs as 80% of all provider-sponsored health plans in the U.S. are not-for-profit.

Lines of Business(For a glossary of terms for lines of business, please see Exhibit 1 in Appendix.)

The payers in the SMB market cover a total of 36.4 million lives. While these payers collectively offer all lines of business, for the purpose of this study, I focused my research on four major lines of business: Commercial Risk, Self-Funded/Administrative Services Only (ASO), Medicare and Medicaid (managed, Fee-for-Service (FFS)).

In the SMB market, there are decidedly fewer Commercial Risk and ASO lines of business. Only 137 (33%) SMB payers offer Commercial Risk plans and 73 (18%) offer ASO plans. Combined, Commercial Risk and ASO payers make up 51% of SMB payers but account for only 13 million lives. In contrast to the private sector, 87% of SMB payers offer some kind of government line of business (Medicare Advantage, managed Medicaid, Duals, SCHIP, et. al.). Altogether, government lines of business account for 23 million lives (64% of total SMB).

Of all SMB lines of business, the most prevalent is Duals, with 177 (43%) payers offering a Dual-eligible plan. However, at 735,392 total lives, the Dual line of business only accounts for 2% of SMB lives. Medicare Advantage2 and Medicaid lines of business are tied for second-most prevalent, each with 144 (35%) payers. However, despite having the same number of payers, the Medicare Advantage line of business only covers 2.5 million lives in the SMB market while the Medicaid line of business covers 19 million.

2018 SMB Lines of Business

Line of Business (LOB) Plans % Lives %

Commercial Risk 137 33% 8,546,309 23%

ASO 73 18% 4,820,468 13%

Government 356 87% 23,032,534 63%

Medicare Adv 144 35% 2,490,570 7%

Medicaid 144 35% 19,072,426 52%

Mgd Medicaid 108 26% 13,122,632 36%

Medicaid FFS 36 9% 5,949,794 16%

Duals 177 43% 735,392 2%

SCHIP 53 13% 734,146 2%

Total SMB Market 409 36,399,311

2 All Medicare FFS lives are covered by a single payer, The Centers for Medicare and Medicaid Services, which falls in the Large segment.


Of the 144 SMB payers that offer Medicare Advantage plans, 38 (26%) also offer managed Medicaid plans, but none offer Medicaid FFS. Of the 144 Medicaid payers, 108 (75%) cover managed Medicaid and 36 (25%) cover Medicaid FFS.

All 51 State Medicaid agencies (including the District of Columbia) fall into the SMB market.

Roughly 21% (85) of SMB payers offer plans in both the commercial and government space, with 49 (12%) offering at least one Commercial, one ASO and one government plan, and 18 (4%) offering at least one Commercial, one ASO, one MA and one MM plan.

Regional Distribution(For regional classification, please see Exhibit 2 in Appendix.)

The SMB market is pretty evenly distributed across the country geographically. The western region has the most payers with 126 (31%), while the central region has the fewest with 103 (25%). The vast majority of payers (87%) operate in a single region, with 78% operating in a single state. A few of the SMB payers can even be considered national or semi-national in scope: 14 payers cover lives in more than 25 states, and 9 of those cover lives in more than 45 states. Of the 41 payers that operate plans in multiple regions, 20 operate in all four regions, and six of those operate in the territory of Puerto Rico as well. In total, eight SMB payers offer plans in Puerto Rico.

Distribution at the state level is relatively proportionate to state population, with the more populated states having more SMB plans. For example, California, the state with the highest population, also has the most SMB payers with 62, while Alaska, the least-populated state, has the fewest with 11. However, there are two states that make the top ten list of states by number of SMB payers but that are not one of the top ten most populated: Wisconsin and Oregon. Wisconsin ranks 20th by population in the U.S., but 4th by SMB payers, while Oregon ranks 27th by population and 8th by SMB payers. There is a higher proportion of SMB payers to overall population in those two states.

Payers in the SMB Market

Central Region: 103 Payers

Northeast Region: 125 Payers

Southern Region: 124 Payers

Puerto Rico: 8 Payers

Western Region:

126 Payers


SMB Market PlayersThe Small SegmentIn the United States, there are 240 health plans with fewer than 50,000 lives. Of these Small plans, 92 started in the last five years and 60% are PSHP. There are no BCBS payers in this segment. Despite having a threshold of up to and including 49,999 lives, the Small segment only averages 10,000 lives per payer. This has to do with the staggering number of “extremely small” payers. Of the 240 payers in the Small segment, 174 (72%) cover fewer than 15,000 lives, 152 (63%) fewer than 5000 lives, and 100 (42%) fewer than 500 lives. That means that “extremely small” payers make up 73% of the Small segment’s payers, but only 13% of its 2.4 million lives. PSHPs account for 65% of these 174 “extremely small” payers.

Small Segment in a Nutshell

Composition Enrollment & Growth Lines of Business Plans %

Total Small Payers 240 Lives Covered 2.4M Commercial Plans 50 21%

% of U.S. Health Plans 49% % of Total U.S. Lives 0.7% ASO Plans 12 5%

PSHPs 143 Avg. Lives per Plan 10K Government Plans 210 88%

% of all PSHPs 60% Largest Plan 49K Medicare Advantage 77 32%

Blues Plans - Smallest Plan 11K Managed Medicaid 27 11%

% of all Blues Plans - New Plans since 2013 92 Medicaid FFS 6 3%

Non-Profit 165 Plans Older than 5 Yrs 148 Duals 129 54%

% of Small Plans 69% Avg. 5-Yr CAGR 4.37% SCHIP 11 5%

“Extremely Small Payers” in Small Segment

Size Payers % Total Lives %

< 500 Lives 100 41.7% 20,298 0.8%

500–5K Lives 52 21.7% 84,647 3.5%

5K–15K Lives 22 9.2% 217,914 8.9%

< 15K Lives 174 72.5% 322,859 13.2%

15K < 50K 66 27.5% 2,119,482 86.8%

< 50K Lives 240 100% 2,442,341 100%

Growth

During the last five years, 92 net new plans entered the Small market. These new plans average 6,000 covered lives, with the largest covering nearly 45,000 lives, and the smallest plan only 11 lives. Of these 92 plans, eight started just this year (2018), and have an average enrollment of 200 lives. The highest of these 2018 plans has 1,000 lives while the lowest has zero.

The 148 Small health plans that have been active since 2013 or earlier saw only a modest five-year compound annual growth rate (CAGR) of 4.37%. Of these Small payers, 43 (29%) had a negative CAGR, the lowest being (72.63%), while 45 (30%) achieved double-digit CAGRs, with the highest being 65.38%.

Lines of Business

Similar to the landscape of the full SMB market, government plans make up the vast majority (88%) of Small payer lines of business. Commercial Risk and ASO only make up 21% and 5% of all 240 Small payer lines of business (respectively).


Of the 210 Small payers offering government lines of business, 130 (62%) offer Duals, 77 (37%) offer Medicare Advantage, 27 (10%) offer managed Medicaid and six (3%) offer Medicaid FFS. Of the 174 “extremely small” plans, 34% have Medicare Advantage lines of business and 66% have Dual-eligible lines of business. Of the 77 Small payers who offer Medicare Advantage plans, four also offer managed Medicaid plans.

Regional Distribution

Small payers offer plans in all four U.S. regions and the territory of Puerto Rico. The northeast and southern regions, with 75 and 73 payers, respectively, lead the western and central regions, with 62 and 55 payers, respectively. The vast majority of Small payers operate in only one state, but 16% operate in more than one state, with three operating in at least 40 states.

Payers in the Small Segment




Puerto Rico: 1 Payer

Western Region:

62 Payers


The Medium SegmentThere are 169 U.S. health plans that cover between 50,000 and 499,999 lives. Of these Medium payers, 13 started in the last five years, 43% are PSHP, and 8% are BCBS plans. The Medium segment, which averages 201,000 lives per payer, exhibits a relatively even distribution of its payers across the segment in terms of lives covered.

Medium Segment in a Nutshell


Total Small Payers 169 Lives Covered 34M Commercial Plans 87 51%


PSHPs 73 Avg. Lives per Plan 201K Government Plans 146 86%

% of all PSHPs 43% Largest Plan 416K Medicare Advantage 67 40%

Blues Plans 13 Smallest Plan 51K Managed Medicaid 82 49%

% of all Blues Plans 8% New Plans since 2013 13 Medicaid FFS 30 18%

Non-Profit 127 Plans Older than 5 Yrs 156 Duals 48 28%

% of Small Plans 75% Avg. 5-Yr CAGR 4.98% SCHIP 42 25%

Growth

Over the last five years, 13 net new plans entered the Medium market. These new plans average 105,000 covered lives. The largest new plan has nearly 416,000 lives, while the smallest has 51,000. Of these 13 new plans, seven are PSHPs.The 156 Medium plans that have been active since 2013 or earlier saw only a modest five-year CAGR of 4.98. Of these payers, 50 (32%) had a negative CAGR, the lowest being (37.64)%, while 49 (31%) achieved double-digit CAGRs, the highest being 113.22%.

Lines of Business

Similar to the landscape of the overall SMB market and the Small segment, government plans make up the vast majority (94%) of Medium payer lines of business. Unlike the Small segment, the private sector has a strong presence in the Medium segment, with 51 (30%) of payers offering Commercial Risk lines of business and 60 (36%) payers offering ASO.

Of the 146 Medium payers offering government lines of business, 48 (33%) offer Duals, 67 (46%) offer Medicare Advantage, 82 (56%) offer managed Medicaid and 30 (21%) offer Medicaid FFS. Of the 67 Medium payers who offer MA plans, 34 also offer managed Medicaid plans.


The 169 Medium payers are pretty evenly distributed among the regions, with 48 offering plans in the central region, 50 in the northeast, 51 in the south and 64 in the west. Seven payers operate in Puerto Rico. Most Medium payers operate in only one state, with the exception of 41 that operate in multiple states. Ten Medium payers operate in at least 40 states. The vast majority of Medium payers only operate in one region, but 12 operate in all four regions, and four operate in all four regions plus Puerto Rico.


Payers in the Medium Segment





Western Region:

64 Payers

Provider-Sponsored Health PlansThere are 216 PSHPs in the SMB market, a 34% increase since 2013 when all 161 PSHPs in the U.S. fell into the SMB market. Today, the Small and Medium segments account for 94% of all PSHPs in the U.S., with the Small segment accounting for 62%.

SMB PSHPs in a Nutshell


PSHPs in SMB Market 216 Lives Covered 15.3M Commercial Plans 73 34%


% of Total PSHPs 94% Avg. Lives per Plan 71K Government Plans 197 91%

PSHPs in Small Market 143 Largest Plan 500K* Medicare Advantage 66 31%

% of Total PSHPs 62% Smallest Plan 13 Managed Medicaid 60 28%

PSHPs in Medium Market 73 New Plans since 2013 55 Medicaid FFS 0 0%

% of Total PSHPs 32% Plans Older than 5 Yrs 161 Duals 125 58%

Avg. 5-Yr CAGR 7.60% SCHIP 25 12%

*Plan actually falls below the Medium segment threshold of 500,000 but, with rounding, reaches 500K


Growth

The top three PSHPs in the SMB market fall just under the Large threshold. Each of these three plans operates in a single state; two in the northeast region and one in the west. The SMB PSHP with the largest membership experienced double-digit growth over the last five years (21% CAGR), catapulting it to the top of the market.

For the SMB PSHPs that have been around since 2013 or earlier, the average five-year CAGR was a healthy 7.6%, with the largest PSHP achieving a staggering 65.38% CAGR during this period. In fact, 57 payers experienced double-digit growth over the last five years, with 23 plans achieving more than 20% CAGR, and four plans achieving more than 40% CAGR. However, 34 PSHPs experienced negative growth during this period, with the sharpest decline at (46.06%) CAGR.

Lines of Business

The distribution of lines of business within the PSHP sub-segment is similar to that of the SMB market as a whole, with 91% of payers offering government lines of business and only 53% of plans offering either a Commercial Risk or ASO line of business. Of the 197 payers offering government lines of business, 66 offer Medicare Advantage while 60 offer managed Medicaid. There are no Medicaid FFS lives in the PSHP SMB Market. Duals is once again the most represented line of business with 58% of SMB PSHPs offering Dual-eligible plans.


The southern and northeast regions have the most PSHPs in the SMB market with 68 each, while the western and central regions have 48 and 51, respectively. There are currently no PSHPs operating in Puerto Rico. Three Medium plans operate in at least 40 states and 14 operate in multiple states.

PSHPs in the SMB Market





Western Region:

51 Payers


Blues Health PlansThere are 13 BCBS plans in the SMB market, which represents only 3% of the total SMB market but 33% of the total BCBS market of 44 plans. The change in BCBS SMB plans between 2013 and 2018 was nominal. Despite there being 14 BCBS plans in 2013, they still only accounted for 3% of the whole SMB market, and 30% of all 47 BCBS plans at that time.

SMB Blues Plans in a Nutshell


Blues Plans in SMB Market 13 Lives Covered 3.8M Commercial Plans 13 100%


% of Total Blues Plans 30% Avg. Lives per Plan 294K Government Plans 10 77%

Blues in Small Market 0 Largest Plan 470K Medicare Advantage 9 69%

% of Total Blues Plans 0% Smallest Plan 97K Managed Medicaid 1 8%

Blues in Medium Market 13 New Plans since 2013 0 Medicaid FFS 0 0%

% of Total Blues Plans 30% Plans Older than 5 Yrs 13 Duals 2 15%

Avg. 5-Yr CAGR 0.21% SCHIP 1 8%

Growth

Of the 13 BCBS SMB payers, four have more than 400,000 lives and two were considered Large in 2013, with a total enrollment of just over 500,000 lives. However, all 13 BCBS SMB payers fall within the Medium segment in 2018.

The average five-year CAGR for all BCBS payers in the SMB market was nominal at 0.21%, with the largest payer achieving a 12.71% CAGR during this period, and the second-largest achieving 10.86%. Eight of the 13 plans experienced negative growth with the lowest being (6.67)%.

Lines of Business

In contrast to the PSHP sub-segment, the BCBS SMB sub-segment has a large commercial focus. All 13 BCBS SMB payers offer a Commercial Risk line of business, and 12 offer ASO. Government lines of business are also strong in the BCBS sub-segment, with 10 of the 13 plans offering Medicare Advantage plans. One BCBS payer offers a full spectrum of Commercial Risk, Medicare Advantage, managed Medicaid, Duals and ASO lines of business.


Nine of the 13 SMB Blues payers operate in the western region, which is roughly double that of the rest of the continental regions. The central and southern regions each have 5 Blues SMB payers while the northeast and Puerto Rico only have four and two, respectively. Three of the SMB Blues payers operate nationally, with two of these payers also operating in Puerto Rico.


Blues Plans in the SMB Market





Western Region:

9 Payers


SMB Market Dynamics (2013–2018)Since 2013, there have been substantial changes in the SMB market, though from the surface it might look relatively stagnant. The total number of lives covered by the SMB market decreased 3% over the five-year period and the number of SMB payers only increased by seven. With payer churn, fluctuations in lines of business covered, and regional expansion, there has been significant movement in the market over the last five years.

Total Lives CoveredThe Small and Medium segments accounted for 36.5 million lives in 2013. Despite representing 84% of all health plans in 2013, the SMB payers only represented 14% of all lives covered. The 221 Small payers combined accounted for only 2.4 million (7%) of lives in the SMB market, despite representing 55% of SMB payers. In 2013, the Small segment averaged roughly 11,000 lives per payer while the Medium segment averaged 176,000 lives.

By 2018, the SMB market covered 36.4 million lives, or 11% of all covered lives, representing a marginal decline in membership but a 3% decline in overall share from 2013. However, SMB payers still account for 83% of all payers in 2018.

Despite the moderate decline in overall SMB market membership, the Small segment experienced nearly 2% growth over the five-year period, increasing its membership by 42,000 lives. This number might seem insignificant until you consider that the average Small payer only covered 11,000 lives in 2013. While the Small segment saw an increase in overall membership, the average payer size fell to 10,000, for a 9% decrease.

5-Year Growth in SMB Market

2013 Lives 2018 Lives 5-Yr Growth

Size Total Average Total Average Total Average

Small 2.40M 11K 2.44M 10K 1.75% (9.09)%

Medium 34.10M 176K 33.96M 201K (0.41)% 14.20%

The Medium segment, which covered 34.1 million lives in 2013, experienced a nominal decline in total lives covered, dropping to 34.0 million by 2018. Despite a decline in membership, the segment raised its average lives per payer by 14% reaching 200,000 lives per payer in 2018.

Overall the Small and Medium segments experienced very little growth between 2013 and 2018, much of which is attributable to the payer churn within the SMB market.

Payer ChurnThere are 409 SMB payers today, an increase of only 1.7% over the last five years. Despite this nominal increase, the ratio of SMB payers to all U.S. health plans actually decreased by 1%. While these statistics may indicate a relatively static market, there have actually been significant changes among the individual SMB payers since 2013.

New Entrants:

Between 2013 and 2018, the SMB market saw a total of 111 new entrants, 105 of which were net new payers. Of these net new payers, 92 (88%) entered the Small segment and 13 (12%) entered the Medium segment. The remaining six were formerly Large payers who experienced a decline in membership and were bumped down into the Medium segment.

Departures:

During this same five-year period, a total of 104 payers exited the SMB market, either because they out-grew the market (13%), they were consolidated or acquired (48%), or they ceased operations (39%). Between 2013 and 2018, 13 Medium plans experienced an increase in membership and were elevated to the Large segment by 2018. 50 payers were either consolidated (34) or acquired (16) during this time. The Small market experienced the bulk of these mergers (66%), with 33 Small payers in total exiting the SMB market due to consolidation or acquisition. The remaining 41 payers exited the SMB market because they ceased operations.


Internal Migrations:

Over the last five years, 298 payers remained in the SMB market, although not without experiencing their own fluctuations. Nine payers shrank in membership, causing them to move from Medium payers to Small payers, while 14 payers graduated from the Small segment to Medium. However, the vast majority of plans (92%) showed no change in segmentation. Of these “usual suspects,” 161 (54%) are PSHPs and 11 (4%) are BCBS.

Summary of Changes to SMB Market between 2013 and 2018

Fluctuations in Lines of BusinessBetween 2013 and 2018, 298 payers retained their classification of Small or Medium payer. Although these “usual suspects” did not see a large change in membership, they did experience significant shifts in lines of business offered over the five-year period.

For clarity, the rest of this section analyzes the five-year changes experienced by the 298 plans who remained in the SMB market during this time.

Government programs:

The government lines of business experienced moderate fluctuations in the SMB market over the last five years, with four payers exiting the public sector altogether. However, this was offset by nine SMB payers who added government lines of business between 2013 and 2018, bringing the total number of payers participating in government programs to 265 by 2018.

Not all government lines of business experienced growth. Medicare Advantage took a big hit in the SMB market in between 2013 and 2018. In 2013, a total of 169 SMB payers had a Medicare Advantage line of business, but by 2018, 83 of these payers (49%) had stopped offering these plans. During this same time period, only 16 payers began offering Medicare Advantage lines of business, bringing the 2018 total to 102 payers, for a five-year CAGR of (9.61)%


.

The Medicaid lines of business did not experience nearly as much churn as Medicare Advantage. In 2013, a total of 144 payers offered Medicaid lines of business (34 Medicaid FFS, 110 managed Medicaid). By 2018, two of the Medicaid FFS payers had switched to the managed Medicaid line of business and there was only one payer who started offering a Medicaid FFS line of business, bringing the total number of payers offering Medicaid FFS to 33.

Of the 110 managed Medicaid payers in 2013, 17 (15%) closed that line of business by 2018. During that same time frame, only three payers added a managed Medicaid line of business by 2018, bringing the total number to 96 payers.

Of the 55 payers that offered both Medicare Advantage and managed Medicaid in 2013, eight (15%) payers closed both lines of business by 2013. Of the 260 payers who did not operate any government lines of business in 2013, one started both a Medicare Advantage and a managed Medicaid line of business by 2018.

Commercial Risk & ASO:

Changes within the Commercial Risk and ASO lines of business were negligible in the SMB market between 2013 and 2018. Commercial Risk payers grew by a net value of seven, after four payers exited, only to be replaced by 11 new payers, bringing the total number of Commercial Risk payers to 111 in 2018. The ASO line of business felt little impact from the shift among its payers, as 13 payers left the ASO line of business, only to be replaced by 14 new payers, bringing the total number of ASO payers to 65 in 2018.

Regional GrowthThe SMB Market also witnessed significant changes in regional distribution over the last five years, with the territory of Puerto Rico experiencing the most churn. In 2013, Puerto Rico had three Small payers, but by 2018 two of them had grown to be Medium payers and the other ceased operations. During that same time, a new Small payer entered the segment, bringing Puerto Rico’s Small payer total to one by 2018; a five-year decrease of 67%. However, Puerto Rico’s Medium Segment saw exponential growth of 600% as it grew from a single payer in 2013 to seven in 2018. Four of these seven Medium payers were the product of migrations from the Small and Large segments.

In the other regions, the Medium segment experienced healthy growth over the last five years, with the central, southern and northeastern regions growing 40% or more and the western region growing 25%. In the Small segment, the central region saw the largest growth (45%) since 2013, despite having the fewest Small payers of all the regions in 2018. The southern and northeastern regions experienced moderate growth in Small payers (24% and 19%, respectively), while the western region saw a decrease of 11%.

Several SMB payers also greatly expanded their geographic footprint during the five-year period with the number of semi-national payers (plans operating in 25 states or more) jumping from six to 14 (233% growth), and the number of national payers (plans operating in 45 states or more) jumping from three to nine (300% growth).


Regional Growth in SMB Market

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Small Medium Small Medium Small Medium Small Medium Small Medium

Central Northeastern Southern Western Puerto Rico

Regional Growth in SMB Market

2013 2018

Key InsightsThe 409 payers in the Small and Medium segments together create the SMB market which represents 83% of all U.S. health insurance plans. However, at 36.4 million lives, it only represents 11% of total U.S. covered lives.

Composition

The SMB market includes 30% of all BCBS plans and 94% of all PSHPs in the country. Of the 409 payers in the market, PSHPs account for 53%, an increase of 13% since 2013. Conversely, BCBS plans only represent 3% of SMB payers and five-year growth has been overall stagnant.

Geographical Footprint

With a presence in every U.S. region and Puerto Rico, the SMB market has a broad geographical footprint. For the most part, payers are evenly distributed across the country, with the exception of two states, Wisconsin and Oregon, which have an unusually high presence of SMB plans relative to their overall populations.

Growth

Between 2013 and 2018, the total number of SMB payers increased from 402 to 409, while membership decreased by nearly 100,000 lives. Despite this relatively stagnant growth, the SMB market actually experienced significant churn in terms of payers moving in and out of the market and fluctuations in lines of business. Although the net increase in SMB payers over the last five years was a meager seven, in actuality there were 111 new entrants in the SMB market during this time frame who were offset by the 104 payers who exited. Of these 104 exiting payers, 50 were consolidated into or acquired by other payers and 41 ceased operations altogether. The SMB market also experienced several shifts in lines of business offered since 2013, the most notable being in the Medicare Advantage line of business, which saw a 40% drop in participants.

Future Expectations

As demonstrated in this paper, the SMB market is constantly evolving. However, based on current patterns, we can make some assumptions about the future landscape of this market. As more provider groups embrace value-based care, we can expect this number to continue to grow in the coming years. Additionally, we can expect to see more consolidation of plans and shifts in lines of business offered as payers attempt to meet growing market demands and accommodate changes in government regulations.


AppendixAll data points were sourced from our subscription to the AIS DHP Database, accessed May 2013 and May 2018.Special thanks to Mark Farrah Associates for their consultation on segmenting.

Exhibit 1: Complete Glossary of Terms

Health Plan Type AIS Definition

ASO (Administrative Services Only) (aka: Self-Funded) Enrollment in self-funded, administrative services only (ASO), or non-risk medical plans. Covers only membership of self-funded employers or other groups that are not listed elsewhere in this directory.

Blues / BCBS Entity is licensed to sell insurance products under the Blue Cross and Blue Shield Association brand.

Commercial Risk Employer-based group or individual health plan enrollment in insured (risk) plans.

Dual-Eligible Members eligible for both Medicare and Medicaid coverage, including D-SNPs, CMS demonstration plans, PACE plans or other programs that formally coordinate care and coverage for such members.

Managed Medicaid (aka: Medicaid HMOs) Plans contracted with state Medicaid agencies to cover Medicaid beneficiaries.

Medicaid Fee-for-Service (FFS) Medicaid membership that is not contracted to Medicaid HMOs and is funded directly by the state. Includes lives administered by a MCO but still funded directly by the state (not under a managed care contract). Also includes PCCM program members.

Medicare Advantage All membership under Medicare Part C managed care plans, including both MA and MA-PDs; does not include Medicare FFS or standalone PDP plans.

Medicare Fee-for-Service (FFS) Enrollment in the traditional FFS Medicare program administered by CMS (Medicare Parts A & B), not served by a Medicare Advantage managed care plan.

PSHP (Provider-Sponsored Health Plan)

Health plans owned or affiliated with a provider entity, such that it is designated as a provider-sponsored plan.

SCHIP (State Children’s Health Insurance Program)

Membership in the State Children’s Health Insurance Program (SCHIP), and other government-based and government-funded health insurance programs that are not Medicare or Medicaid, per se.

Edifecs Inc. is a global healthcare software company committed to improving outcomes, reducing costs, and elevating value of healthcare for everyone. Edifecs delivers the industry’s premier IT partnership platform to providers, insurers, pharmacy benefit management companies, and other trading partners. By mobilizing its leading solutions at the front end of the healthcare information pipeline, Edifecs provides a unified platform for partners to flexibly pilot and scale new initiatives using their existing enterprise system. Since 1996, hundreds of healthcare customers have relied on Edifecs partnership solutions to future-proof their leading initiatives in the midst of a dynamic healthcare landscape. Edifecs is based in Bellevue, WA, with operations internationally. Learn more about us at edifecs.com.

© 2018 Edifecs Corporation. All Rights Reserved. www.edifecs.com PN: WP0767.2018.07

Exhibit 2: US States by RegionCentral: IA, IL, IN, KS, MI, MN, MO, ND, NE, SD and WINortheast: CT,DC, DE, MA, MD, ME, NH, NJ, NY, OH, PA, RI, VT and WVSouth: AL, AR, FL, GA, KY, LA, MS, NC, OK, SC, TN, TX and VAWest: AK, AZ, CA, CO, HI, ID, MT, NM, NV, OR, UT, WA and WY

SMB Market Regions

insights into smb health insurance market - edifecs

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