Fitch Ratings’ outlook for the U.S. health insurance industry is stable, based on 75 percent of its insurance and managed care ratings. The agency said it anticipates the predominant rating actions to be affirmations over the next 12 to 24 months.
Fitch’s fundamental outlook for the sector is negative, though, as the Affordable Care Act could impose lower margins related to higher fees and utilization trends, as well as lower Medicare Advantage reimbursement rates, Fitch said. Those developments, however, are unlikely to erode earnings or capital positions or disrupt the competitive landscape over the next 12 to 24 months, the agency said.
Health insurance exchanges also add uncertainty around enrollment trends and exchange-sourced business’ profitability, the agency said. Exchanges likely will add to enrollment and revenue growth, but Fitch said the proportion of young, healthy people buying coverage through the exchanges is not as high as originally anticipated. And, if utilization rates overall are significantly above what was assumed in the pricing, which Fitch said likely is the case, exchange-based enrollment will produce losses, despite the existence of the ACA’s risk corridors and reinsurance mechanisms, Fitch said.
In a previous report, Fitch said the complexity of the government’s health insurance website also could contribute to misinformation and lead to lower profitability in health insurers' exchange-sourced businesses. Insurers’ interest in committing resources to build their own sites, or to place themselves in the middle of the website controversy, also is questionable, Fitch said. The government also likely would be hesitant to allow the interfaces, which could be viewed as limiting the marketplace by reducing consumers' ability to comparison shop.
Several favorable trends are offsetting these developments, Fitch said, including the expansion of Medicaid and the individual market. Medicaid is expanding in 22 states and those programs also are adopting managed care practices that are expected to reduce costs and improve medical outcomes. Insurers also are benefiting from lower health care cost inflation, driven largely by a shifting payment model, the agency said. The new model replaces one based on the number and type of services provided and is intended to reduce utilization rates and further suppress medical cost inflation, Fitch said.
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