CHICAGO--(BUSINESS WIRE)--Fitch Ratings' expectations regarding the credit outlook for U.S. health insurers have not changed as a result of President Obama's re-election and the continuation of Democratic majority control in the Senate. We believe that health insurers will continue to face moderate margin pressure, partially offset by the positive impact of growing health plan enrollment under the Patient Protection and Affordable Care Act (PPACA).
Our recent expectations for the health insurance industry have been shaped by the credit negative impact of margin pressure, driven largely by minimum loss ratio (MLR) requirements of PPACA, as well as the credit positive impact of enrollment growth resulting from the legislation.
This view remains essentially unchanged following the re-election of the President and the failure of Republicans to gain control of the Senate. Gov. Romney was strongly opposed to PPACA and had indicated that he would work toward its repeal if elected.
Portions of PPACA were implemented in 2010, and the full legislation will be phased in by 2018. Fitch views PPACA's ultimate impact on the credit fundamentals of the health insurance and managed care sector as uncertain. In 2014, important provisions regarding mandatory coverage requirements kick in, Medicaid expansion becomes effective, and insurance exchange mechanisms become operational. We therefore see 2014 as a key milestone in understanding PPACA's long-term implications.
To date, PPACA's financial impact on health insurance and managed care companies has largely been limited to margin pressure from the MLR requirements that became effective in 2011. In the aggregate, this pressure has been offset by better than expected cost trends.
We also view acquisitions announced since PPACA's enactment as partially driven by the desire to gain or enhance access to Medicaid markets that will experience enrollment growth as PPACA is implemented. Some examples include Cigna Corp.'s acquisition of Health Spring Inc., as well as the purchases of AmeriGroup Corp. by WellPoint Inc. and Coventry Health Care Inc. by Aetna Inc.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
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