(NewsNation) — Government segment health insurance plans, like Medicare and Medicaid, are expected to exceed the commercial segment in profit by 2027 by 65%, ultimately generating billions in profit for health insurers, according to a report by Axios.
A McKinsey report from last month projected a growth rate of greater than 10% from now until 2027, estimating profits to grow from $7 billion in 2022 to $12 billion in 2027.
“Reimbursement tends to be higher for, in the insurance lingo, the riskier population,” Shahed Al-Haque, a partner at McKinsey, told Axios. “Because (plans are) getting a higher level of reimbursement and the cost does not necessarily scale at the same level of reimbursement, they’re able to achieve profitability.”
The projected data coincides with the increase in the number of Americans with government-funded insurance enrolling in private health plans, Axios reported.
Between 2019 and 2022, Medicare Advantage enrollment grew historically by 9% annually, McKinsey reported. McKinsey projects enrollment in the health plans will continue to grow, though at a slower rate of 5% annually between 2022 and 2027.
With the increase in Medicare and Medicaid coverage for sicker patients, insurers are attracting less costly patients, Axios reported. The sicker and more vulnerable patients are being covered by government-funded insurance, which means the government pays insurers more for covering higher-risk patients, Arielle Mir, vice president of health care at Arnold Ventures, told Axios.
Mir told Axios that if insurers can find high-risk patients who are not as sick, it becomes very profitable for insurers. The more the government pays insurers to cover high-risk patients, the more money insurers make.