Currently, the largest PBM companies in the United States are CareMark owned by CVS, Optum RX owned by United Health, and ESI (renamed EverNorth after the acquisition) acquired by Cigna. Together, these three giants handle more than 80 percent of the nation's prescription volume. In 2021, CVS Caremark, EverNorth, and Optum Health handled 35%, 25%, and 23% of the total number of prescriptions in the United States, respectively, accounting for 83% of the total prescriptions in the United States, and the proportion has further increased compared with 79% in 2020 and 75% in 2019. All three of these giants have cross-border operations, all three are combined with commercial insurance, and CVS also has retail pharmacies.
The core reason for the entry of U.S. commercial insurance into the PBM space is the bottleneck in the growth of insurance business, which is mainly caused by demographics.
According to the U.S. Census Bureau, the percentage of the U.S. population with insurance rose from 84% in 1996 to 92% in 2021, with a significant decrease in the proportion of the uninsured. However, the proportion of the population with commercial insurance has declined, from 70% in 1996 to 66%, and the proportion of people with ** insurance has increased, from 26% to 36%. Insurance includes Medicare for retirees, Medicaid for low-income people, and military personnel.
Among them, the most noteworthy is that among commercial insurance users, the proportion of the population with employer insurance has decreased, from 61% in 1996 to 54% in 2021, while the proportion of the population with ** insurance Medicare and Medicaid has increased, with Medicare rising from 13% to 18% and Medicaid rising from 12% to 19%.
This suggests three characteristics of the shift in the structure of the insured population faced by U.S. insurance:
First, aging. The share of the U.S. population aged 65 and over increased from 12% in 2000 to 16 in 20218%, the number increased from 35 million to 56 million, with an average annual growth rate of 22%。The proportion of people aged 18 to 64 fell from 62% to 61%, and the number fell from 17.4 billion people to 20.2 billion people, but the average annual growth rate is only 07%。In other words, more and more people will reach retirement age and join Medicare, and the slow increase in the number of people insured by employers means that the number of people insured by employers will not increase significantly.
Second, the number of people in the United States who do not have any insurance has decreased dramatically. In 2010, Obama signed the Affordable Care Act (ACA) into law to reform health insurance. The ACA's biggest impact on insurance was the launch of the Insurance Exchange Marketplace in 2014, which allows individuals and small businesses (under 50 people) to purchase insurance through the exchange, which is largely subsidized by the United States**. Since then, the proportion of people without any insurance has been declining year by year, from 15 in 20106% down to 8 in 20216%。In other words, it will be more difficult to promote the coverage of insurance, and the market faced by insurance companies will no longer be an incremental market, but a stock market.
Third, combining the above two points, it is precisely because the number of people covered by employer insurance will be mainly stock, but the number of medicare coverage of retirees is indeed increasing. As a result, there will be an increase in the number of potential customers who purchase complementary business plan products for retirees, such as Medicare Advantage (MA). At the same time, Medicaid coverage is also larger, and the number and proportion of people participating in Medicaid are increasing, which is why insurance companies are increasing their efforts to make Medicare and Medicaid complementary products. In 2021, the number of participants in MA products in the United States has accounted for 46% of the total number of people insured in Medicare, a significant increase from 16% in 2006, and the growth rate has been rapid since 2018.
In addition to the number of reasons, another important reason is that the market generated by the CMS subsidy to commercial insurance for supplementary business, especially MA products, also allows commercial insurance to maintain the premium of about $10,000 even if the premium of MA supplementary products is set at 0 or very low. According to data from Cigna's annual report, the average premium per person for its commercial insurance is $6,609, while the ** supplementary business (mainly MA products) is as high as $9,719. As a result, insurers are scrambling to capture the market for supplemental business, especially MA products, due to higher premiums per person. It is only in this area that there is the possibility of increment plus higher premiums.
In view of the above points, it can be summarized that it is difficult for insurance companies to release large increments in the corporate employer group insurance market due to the demographic structure and participation rate are already very high. However, the growth of supplementary insurance, especially Medicare Advantage, is still considerable, especially with the aging process, more people will switch from employer plans to Medicare after retirement, becoming the customer group of Medicare Advantage supplementary commercial insurance products, and CMS subsidies for commercial insurance on supplementary products are significantly higher than employee premiums, so commercial insurance must seize the increment of this market.
However, even with the promotion of Medicare Advantage, the growth of the overall insurance market is still facing challenges such as the ceiling of the core employee market and the smaller incremental market, and the growth will be bottlenecked, which is also the motivation to promote the layout of large insurance companies in the whole pharmaceutical industry. Coupled with the fact that the PBM market is severely opaque, insurers should jump right in rather than being passively locked out of the opaque wall.