The Private Health Insurance Underwriting Cycle, Economic Profits and Their Determinants

Abstract

The underwriting cycle in private health insurance refers to fluctuations in profit margin over time. This research, a novel effort, aims to understand the peak-to-trough magnitudes and determinants of the industry-wide underwriting cycle. Historical industry-wide profits and losses have not been previously estimated, making this study a significant contribution to the field. Based on the reports of the Centers for Medicare and Medicaid Services (national health expenditures reports), this study begins by constructing the underwriting cycle of private health insurance performance over the last six decades, from which profit margins can be estimated. Expressing the net cost of private health insurance and personal health expenditures as a fraction of the premium facilitates the analysis, which employs standard methods. The results show, over a 62-year period from 1960 through 2022, that there are 12 underwriting cycles. The capacity to generate profits is influenced by the cost of personal healthcare expenditures, competition for enrollment, and the availability of substitutes. Evidence of reduced capacity for profitability is a finding that additional enrollment does not contribute to profits and that private health insurance enrollment is generally declining. Cumulative profits due to the sales of private health insurance only over the 62 years assessed are negative.