A combination of regulatory, political and economic factors are set to create an uncertain environment for U.S. health care insurers, Moody's Investors Service reports, leading to a continuation of the negative outlook for the industry.
"Despite better-than-expected results in 2010, U.S. health insurers will face considerable challenges over the next 12 to 18 months," says SVP Stephen Zaharuk. "These will stem mainly from the health care reform law, increasing health care costs, and the sluggish economy."
In a new report, "U.S. Health care Insurers: Outlook Remains Negative," the rating agency points to provisions of the health care reform law that become effective in 2011, such as minimum medical loss ratio (MLR) regulations and changes to Medicare Advantage reimbursement levels, as having the potential to significantly affect the financial results of health care insurers.
"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," Zaharuk says.
According to Moody’s, the number of members on insurers rolls will also likely suffer--from layoffs in the public sector, as well as languishing job growth in the commercial sector. Additionally, as health care costs continue to go up, increased premiums are forcing more individuals and employers to forgo insurance.
As a result of the health care reform law, says Zaharuk, companies seek to diversify into areas not directly impacted by the law and are reassessing some of their marginal business lines. While these actions could produce more favorable results in the longer term, they bring additional risk and challenges and may be a distraction to management in the short term.
Current pressures will have an uneven effect on U.S. health insurers, varying by market segment and geography. “Overall, we expect that these challenges will exert negative pressure on the credit fundamentals and ratings of health insurers into the foreseeable future,” Zaharuk says. "However, our view continues to be that the larger and more diversified companies will be better positioned to meet the challenges the industry faces."
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