Moody’s: Despite ACA uncertainty, health insurers’ outlook stable

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U.S. health insurers maintained a stable outlook in the latest report from Moody’s Investor Service, with the rating agency expecting insurance companies “will continue generating solid results owing to disciplined medical management and moderate medical cost trends.”

Some of the credit for the stability was owed to insurers’ decisions to exit the Affordable Care Act (ACA) exchanges. Moody’s called the market a “challenging business” to which the insurers rated in its report now have lowered exposure.

The uncertainty about the ACA’s future does present some potential trouble, according to Moody’s. It cited potential risks should Congress “adversely impact Medicaid, as the latest ACA repeal plan may do by rolling back the law’s Medicaid expansion. Additional pressure may come from few opportunities for additional growth in membership.

“With the economy near full employment, job trends are stable but will not support robust organic medical enrollee expansion in the group commercial segment—the industry's largest business, and representing roughly 55 percent of medical membership in the U.S.,” said Pano Karambelas, a Moody's senior vice president.

Greater opportunity for growth may be found in Medicare Advantage (MA) as baby boomers age. Moody’s said this segment is “not devoid of risk,” but may be conducive for mergers and acquisitions activity. The same week the report was issued, insurance giant Anthem expanded its MA business by acquiring Florida-based HealthSun.

The report also cautioned that while cash flow generation is solid among insurers, financial leverage is high due to share repurchases. Larger mergers and acquisitions which would be financed by new debt may then pressure credit ratings for individual insurers.