2015 rate expectations nix health insurers rating: Moody’s

Moody’s Investors Service issued a credit negative rating to health insurers that offer Medicare Advantage plans as 2015 Medicare rates are expected to be detrimental to enrollment and earnings.

According to Moody’s, health insurers should expect “erosion” among benefits and premium increases as the Centers for Medicare and Medicaid Services recently proposed a decrease in payment to insurers offering the Medicare health plan option.

“The decrease is credit negative for insurers because lower reimbursement rates from the government equal less attractive MA plan offerings (i.e., lower benefits and/or higher premiums and co-pays), which are likely to lead to lower plan enrollment,” notes the report’s author Stephen Zaharuk, senior vice president of Moody’s financial institutions group.

The New York-based rating agency lists that the preliminary expectations point to an average reduction of 3.5-4.5% from last year. Other proposed changes include requiring a clinical health assessment, a more stringent bonus program under the Affordable Care Act and a limit on individual cost increases.

Final rates are to be released April 7 after a comment period, Moody’s says.

Because the senior population enrolled in MA products tend to be “sticky,” the rating agency says that this age group may still favor these plans over traditional Medicare plans. According to data from the Henry J. Kaiser Family Foundation, approximately 28% of the 52 million on Medicare are enrolled in MA plans. Over the past decade, this number has tripled to 14.4 million.

“There will be a clear challenge for health insurers to design their 2015 MA products so that they remain attractive and affordable to maintain their current membership base and profit margins,” Zaharuk explains.

Last month, Moody’s downgraded health insurers after analyzing the impact of the demographics of those enrolling in ACA plans and unknown circumstances regarding the slated industry assessment tax. Moody’s includes individual health exchanges and the commercial group plans to be marketed Jan. 1, 2015 as a concern. The agency also mentioned the employer mandate and rate pressures on industry products.

Moody’s predicted that net earnings margins will be reduced to 2% and smaller overall membership growth to 1%. In 2013, net earnings and overall members were situated at 3%.

Also, the ratings agency states that enrollment statistics show that only 24% in individual products are aged 18-34, which implies a larger share of the older and less healthy population  could drive up claim costs.