Health insurer outlook is stable despite headwinds: Moody’s

As 2023 attracts to a detailed, Moody’s Buyers Service stated in a current report that the full-year outlook for well being insurers stays steady regardless of upcoming challenges from adjustments to Medicare Benefit star rankings and the GLP-1 class of weight reduction medication.

Citing a decline in Medicaid memberships because of the resumption of eligibility opinions, Moody’s initiatives decrease income progress for well being insurers this yr regardless that their Q3 earnings met Q2 efficiency and the business’s stability is in keeping with expectations.

Nevertheless, the agency stated that monetary outcomes throughout the business met its forecasts regardless of sure unexpected headwinds, akin to a spike in medical utilization amongst Medicare Benefit members.

In June, UnitedHealth (NYSE:UNH), the most important managed care participant within the Medicare Benefit market, warned that the post-COVID normalization of care utilization amongst seniors would damage its Q2 medical care ratio.

UNH shares, together with these of its most important rival within the MA market, Humana (NYSE:HUM), fell in response alongside their friends, Alignment Healthcare (ALHC), Clover Well being (CLOV), and CVS Well being (NYSE:CVS).

Moody’s argues that whereas greater MA utilization continued into Q3, the development stabilized however with out an enchancment.

Regardless of a disruption to well being insurers from ongoing Medicaid redeterminations as anticipated, its year-to-date influence has thus far been “comparatively small,” the analysts argued, including that almost all members who misplaced protection are anticipated to enroll in different well being plans.

Throughout the pandemic, a three-year pause in eligibility opinions led to a 32% rise in Medicaid memberships amongst market gamers akin to Centene (NYSE:CNC), Elevance Well being (ELV), and Molina (MOH).

“As anticipated, that is considerably lowering the earnings progress charge of the well being insurers we charge, however it is just considered one of a number of drivers of this development,” the analysts wrote, including that “we count on that a lot of the disenrollees will re-enroll within the particular person market or in employer-based insurance coverage.”

Nevertheless, Moody’s expects long-term implications from how Medicare Benefit star rankings are calculated. The yearly up to date system categorizes MA plans on a one-to-five performance-based scale, and plans with a score of 4 or 5 stars are eligible to obtain bonus funds after they search Medicare reimbursements.

In October, Elevance (ELV) shares fell after disclosing that the proportion of its MA members in plans with rankings of 4 stars or greater had dropped to 34% for the 2024 score yr from 64% a yr in the past.

Different notable developments within the business embody extremely fashionable however pricey weight-loss medication often known as GLP-1 receptor agonists from Novo Nordisk (NVO) and Eli Lilly (LLY).

Moody’s argued that whereas well being insurers can mirror their prices in coverage charges, it is a danger for his or her company shoppers if GLP-1 utilization just isn’t managed appropriately.

“Well being insurers can embody these prices in coverage costs,” the analysts wrote, including that “nevertheless, for company shoppers who contract with well being insurers for administrative companies solely and in any other case self-insure, the danger is greater, particularly if utilization just isn’t successfully managed.”