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The outlook for US health insurers is stable, believes rating
agency Moody’s Investors Service. This opinion reflects what
Moody’s termed the likelihood of solid, sustainable earnings.
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Three key factors underpinned Moody’s stable outlook. “First is the
stabilisation of medical [cost] trends along with improved
monitoring capabilities that provide for the continuation of
current profit levels,” explained Steve Zaharuk, a vice-president
and senior credit officer at Moody’s. He highlighted the increased
quantity of data available and improved analysis that enable health
insurers to price products appropriately and to monitor and keep
medical trends in check.
In addition, recent trends in plan design and pricing have resulted
in more cost-shifting to the member, according to Zaharuk. This,
plus an improvement in the awareness and encouragement of healthy
lifestyles, has helped to stabilise medical cost trends.
The second factor influencing Zaharuk’s view was that offerings by
Medicare (the health insurance programme administered by the US
government) via the private sector are profitable and very popular
with senior citizens.
As a third factor in the stable outlook, Zaharuk noted that while
acquisitions continue in the health insurance industry, the size
and scope of transactions have typically been smaller as companies
focus on improving capabilities or providing diversification.
“These smaller transactions tend to be less risky and improve the
business profile of the company,” said Zaharuk.
However, he continued: “Offsetting these positive factors, we note
that growth in the traditionally strong large employer commercial
market is stagnating.” As a result, he added, health insurers are
focusing on less familiar and more risky markets such as
individual, small group and government business where profitability
and persistency are less reliable. Health insurers also face
uncertainty from political pressure to change the US health care
industry’s structure.
