Hailed by US President
Barack as the answer to the country’s health insurance
problems, the new Patient
Protection and Affordable Care Act could spell disaster
for some small health insurers, warns rating agency Weiss Ratings’
president Martin D Weiss.
“Sweeping changes mandated by
health care reform, such as the removal of certain limits and
mandated coverage for pre-existing conditions, will inevitably
force health insurers to spend more on medical care,” said
Weiss.
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“Most large health insurers will be
able to handle it. But we are concerned that weaker,
less-profitable insurers will be forced out of the market, reducing
competition and ultimately leading to fewer choices and higher
premiums for consumers.”
Possibly
difficulties
His view is based on a study
conducted by the rating agency of 585 US health insurers. Of these
insurers, Weiss Ratings noted that 353 already meet the mandated
requirement going into effect next year to pay out at least 85% of
their premium dollars in medical expenses.
Among the 585 insurers, 95, or
16.2%, received a rating from Weiss Ratings of D+ (weak) or lower,
which the agency said indicated that they were at risk of future
financial difficulties caused by higher medical costs, a weaker
economy or other pressures.
In addition, another 186 companies,
or 31.8% of the industry, are rated C+, C or C- (fair), many of
which, Weiss Ratings believes, could also have “some difficulty”
absorbing the additional costs mandated by health care reform.
“Smaller insurers with less capital
and fewer efficiencies of scale are more likely to suffer
difficulties or even go out of business due to health care reform,”
commented Weiss.
He explained that already, even
before any additional expenses mandated by health care reform, 174
health insurers reported losses in 2009.
In contrast, he continued, the
largest, most efficient insurers with abundant capital and solid
profits are not only in a position to absorb the higher expenses
mandated by reform, but could also expand their market share by
buying up the weaker companies.
According to Weiss Ratings, the US’
16 largest health insurers control 45.7% of the health insurance
industry’s assets. The largest health insurer, Kaiser Foundation
Health Plan Inc with $37.8bn in assets, is rated A- (excellent) by
Weiss Ratings, while the second-largest, Health Care Service Corp
with $11.4bn in assets, is rated A+.
Also holding excellent grades from
Weiss Ratings are Blue Cross Blue Shield of NC (A+), Blue Cross
Blue Shield of SC (A-), Blue Cross of California (A+), California
Physicians’ Service (A), Community Insurance Co (A-) Empire
HealthChoice Assurance (A-) and Excellus Health Plan (A+). None of
the 16 largest are in the weak (D+ or lower) or fair (C, C+, C-)
category, noted Weiss Ratings.
Unlike most other rating agencies,
Weiss Ratings accepts no compensation of any kind from the
companies it rates, deriving its revenues exclusively from the sale
of ratings and data to consumers and others through public
libraries and the internet.
Weiss Ratings provides ratings on
900 US life insurers, 2,700 general insurers and 600 health
insurers. In addition it provides ratings on 8,000 banks and
savings and loans companies and non-financial listed companies, and
investment funds.
Outspoken
critic
Weiss, who founded Weiss Ratings in
1971, is a vehement critic of the major rating agencies.
He is particularly critical of
their failure to warn policyholders in advance of failures of major
insurers Executive Life, Mutual Benefit Life Fidelity Bankers Life,
First Capital Life and Monarch Life in the early 1990s.
More recently he has been critical
of the major rating agencies’ for not warning in advance of
failures such as that of Lehman Brothers in September 2008.
“On the morning of the failure,
Moody’s still gave Lehman Brothers a rating of A2; S&P gave it
an A; and Fitch gave it an A+,” wrote Weiss in a release published
in May 2010.
Weiss warned that Lehman Brothers
faced serious difficulties 182 days before it filed for
bankruptcy.
Could his warning on the financial stability of many health
insurers be an omen of serious problems ahead?
