Intercompany Eliminations: Secret to Health Insurance Company Profits

Intercompany Eliminations: Secret to Health Insurance Company Profits

Intercompany Eliminations are an accounting technique to prevent double counting revenue when a subsidiary of a company sells a product or service to another subsidiary of the same company.

In the case of United Health Group, an intercompany elimination is used when the United Healthcare Insurance subsidiary pays claims for medical and pharmacy services to the Optum subsidiary (also of United Health Group).

The intercompany elimination allows health insurance carriers to make profits over and above the medical loss ration (MLR) of 85% because the MLR only applies to the health insurance subsidiary, not the 'healthcare and pharmacy services' subsidiary.

The other major health insurance carriers have the same structure to allow for intercompany eliminations.

The Cigna Group is the parent company for Cigna Healthcare (insurance subsidiary) and Evernorth (healthcare services subsidiary).

Elevance is the parent company for Anthem (insurance subsidiary) and Carelon (healthcare services subsidiary).

CVS Health is the parent company for Aetna (insurance subsidary) and CVS Caremark (PBM), CVS Pharmacies (pharmacy) and Minute Clinic (healthcare services).

Sources:
https://www.axios.com/2021/07/16/unit...

https://gisthealthcare.com/unitedheal...

https://newsroom.thecignagroup.com/ci...

https://www.elevancehealth.com/who-we...

https://www.sec.gov/Archives/edgar/da...

https://www.elevancehealth.com/newsro...

https://www.sec.gov/Archives/edgar/da...



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