Outlook negative for health insurers: Moody’s

Largely due to uncertainties on healthcare reform, the ratings service changed health carriers’ financial outlook.

Environmental

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The outlook for health insurers is being changed from “stable” to “negative,” largely due to uncertainty relating to the effects of the Affordable Care Act, Moody’s announced Thursday, spelling trouble for everyone involved in the industry, from carrier heads to participating producers.

The ratings agency said President Obama’s signature healthcare law creates an “unstable environment” for health insurers, and would lead to a 2% loss in profits in 2014. Additionally, the lack of young and health Americans enrolling in health plans offered through the exchanges creates a strain on already uncertain profit margins for health insurance carriers.

“While we’ve had industry risks from regulatory changes on our radar for a while, the ongoing untable and evolving environment is a key factor for our outlook change,” said Moody’s Senior Vice President Stephen Zaharuk. “The past few months have seen new regulations and announcements that impose operational changes well after product and pricing decisions were finalized.”

Zaharuk added that premium calculations from insurers would likely be unable to cover the industry assessment tax that begins this year.

Given that health insurers’ profit margins are typically just 2% to 4%, decreased profitability will have repercussions that echo across all corners of the industry.

Producers, who are already facing lowered commissions under provisions of the act, largely expect their profits to continue to decrease as carriers look to cut expenses. Susan Lundy, owner of California-based Benefits by Design, told Insurance Business she plans to “prepare for the [financial changes] by retiring.”

“No one is going to stay in this business who does health insurance only,” she said.

The best way to ride out this gloomy forecast? Diversification, says Boise, Idaho-based agency owner Scott Leavitt.

“We’ve expanded more into financial planning, life insurance, and disability insurance,” said Leavitt, president of Scott Leavitt Insurance.  “We have to make up for the loss of revenue by selling other products.”

In its analysis, Moody’s seems to agree with Leavitt on behalf of both producers and the insurers they represent.

“These changing dynamics will have an uneven effect on insurers, as the impact of these factors will vary by market segment and geography,” the agency said. “Moody’s view continues to be that the larger and more diversified insurers will be better positioned, both financially and strategically, to meet the challenges facing the sector.”

 

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