Moody’s Investor Services is joining the naysayers of President Barack Obama’s recent administrative “fix” to his signature healthcare program. In a “sector comment” issued this week, Moody’s warned that health insurance carriers will suffer heavy losses due to the extension of policies considered non-compliant under the Affordable Care Act.
Moody’s observed that Obama’s proposal allowing the extension of non-compliant plans offers a large number of Americans a reason not buy coverage through government-created exchanges. Already suffering from low enrollment figures, the ACA exchanges will likely create a high-risk pool that drains carrier cash, the agency said.
“The President’s administrative fix compounds the risk of insufficient enrollments in the ACA’s health insurance plans to provide insurers with sufficient premiums to cover their costs,” Moody’s said. “Additionally, according to the Department of Health and Human Services, enrollment on the exchanges thus far is much lower than government projections, a credit negative for participating health insurers.”
While Moody’s believes all invested insurers will take a hit from the President’s “fix,” it noted that some are more at risk than others. WellPoint and Health Net are particularly at risk of “serious disappointment.”
“Besides the low return in membership from their administrative expense investment, the exposure to adverse selection is likely to negatively affect earnings in 2014,” Moody’s said of the two carriers.
Dan Eich, president of Washington-based Oak Insurance Services, agrees that adverse selection will be a real test for carriers, but said the ACA was always going to cause that problem regardless of any administrative changes.
“With or without deadline extensions, the ACA pools created through the exchanges will be high-risk pools—exactly like what happened here in Washington in the mid-1990s when we passed a guaranteed issue law,” Eich said.
Moody’s also noted that technical problems surrounding multiple exchange websites, as well as potential legislative action against the ACA, make it unlikely the exchanges will enroll the 7mn Americans projected by the Congressional Budget Office to be covered under ACA plans by March.
Still, Moody’s isn’t writing off the health insurance sector yet. Things could still turn around thanks to the White House’s earlier move to delay the enrollment deadline.
“Since the open enrollment period does not end until March 31, the enrollment figures could improve,” Moody’s concluded.
