State of the Insurance Market Report

In the first half of 2023, the healthcare industry faced ongoing challenges across coverage lines, with five notable changes from the beginning of the year:

• Medicaid requalifications restart after PHE: Medicaid suspended all redeterminations during the COVID-19 Public Health Emergency (PHE). This caused Medicaid enrollment to swell by more than 17% during the pandemic. Since the end of the PHE in May, redeterminations resumed, notably increasing in non-Medicaid expansion states. The increase in uninsured patients caused providers to deliver more uncompensated care. Additionally, health plan enrollments declined. If healthier people are the primary source of the drop-off, health plan loss ratios may increase.
• Industry consolidation drives more at-home and outpatient care: Healthcare is rapidly expanding outside of hospitals. More health care systems are shifting to outpatient services, including physician practices, surgery centers, and at-home care. The National Institute of Health reports that patients receive care in outpatient and alternative settings 89% of the time. Increased M&A activity and joint ventures between healthcare systems and physician practices are driving this trend. Telehealth and other innovative treatment methods are surging, especially as the aging U.S. population increasingly depends on government assistance.
• Patient volumes improve: Overall patient visits increased in the first half of 2023. Outpatient volumes are growing at a faster rate than inpatient services.
• Operating margins and revenues trend positive: According to consulting firm Kaufman Hall's latest National Hospital Flash Report, hospital finances are stabilizing due to plateauing labor costs and increased patient volumes. From January to July, operating margins rose from -0.8% to 1.4%, indicating a trend of continued improvement.
• Court activity ramps up, along with large verdicts: Cases postponed due to COVID-19 are now making their way through the courts, leading to more frequent and severe losses. Notably, in the first quarter of 2023, one carrier that serves healthcare organizations experienced three nuclear verdicts, each upwards of $20 million. As court activity resumes full force, insurers are worried that recurring large verdicts will become an all-too-familiar trend. This would influence rates, pricing, and capacity not only in the medical malpractice space, but also in other areas of the casualty market as well.

"Hospital finances are stabilizing due to plateauing labor costs and increased patient volumes. From January to July, operating margins rose from -0.8% to 1.4%, indicating a trend of continued improvement."