Health Insurance Report™ helps you track and analyze legal, legislative, and regulatory developments affecting the health-insurance industry throughout implementation of the Affordable Care Act...
Despite better than expected results in 2010, the outlook for the health insurance industry is negative as a result of the health care reform law, increasing health care costs, and the sluggish economy, Moody's Investors Service Inc. said Jan. 4 in a report.
“Our expectations for 2011 for the sector as a whole include lower earnings, flat-to-low membership growth, and strategies increasingly focused on diversification,” said the report, US Healthcare Insurers: Outlook Remains Negative.
During 2010, health insurers were required to provide additional benefits under the Patient Protection and Affordable Care Act (PPACA), and they were able to adjust premiums appropriately, the report said. However, in 2011, two key provisions of the law, the minimum medical loss ratio regulation and changes to Medicare Advantage reimbursement levels, could significantly affect insurers' financial results, the report said.
Moody's Investors Service is a wholly-owned credit rating agency subsidiary of Moody's Corp.
“The MLR regulations will, in effect, limit profitability in the individual and group insured segments, and changes to Medicare reimbursement could reduce both margins and membership,” said Stephen Zaharuk, senior vice president of the credit rating agency, in a press release. The rule requires insurers to spend at least 80 percent to 85 percent of premiums on medical claims or quality improvements, or refund the difference to policyholders beginning in 2012.
Under PPACA, the regulatory landscape for the next several years will bring more challenges, the report said. As a result, health insurers are seeking to diversify into areas not directly affected by the law and they are reassessing some of their marginal business lines.
While that could produce more favorable results in the longer term, “These are distractions from the management and growth of the business,” the report said. “In many respects, health care reform has forced companies into a defensive strategy mode compared to the aggressive growth and acquisition strategies followed a few years ago.”
Premium rate increases, which the Department of Health and Human Services would review for small group and individual insurance plans that exceed 10 percent under a proposed rule (see previous article), has become “a political issue,” the report said. “The actions we have seen during 2010 with respect to delays and denials of proposed rate actions have had more of a political spin than traditional regulatory oversight,” it said. “Our concern is that the review and approval process for health care insurers may become more politically driven, resulting in an over-burdensome process that could result in rates being delayed, denied or approved at lower/insufficient levels, thus hurting profitability,” it said.
In addition to regulatory challenges, languishing job growth and rising health care costs are forcing some employers and individuals to forgo insurance due to rising premiums, the report said.
The economic downturn also has “skewed utilization patterns over the last few years, creating havoc with actuarial pricing models,” the report said. During 2009, medical utilization was higher than anticipated, while it was unexpectedly much lower in 2010, it said. Due to the unpredictability of medical use patterns, “it is unclear whether insurers will have priced appropriately for 2011.”
“Overall we expect that these challenges will exert negative pressure on the credit fundamentals and ratings of health insurers into the foreseeable future," Zaharuk said. However, larger, more diversified companies will be better positioned to meet the coming challenges, the report said.
The report, US Healthcare Insurers: Outlook Remains Negative is available at http://www.moodys.com.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)