OLDWICK, N.J.--(BUSINESS WIRE)--The impact of the Patient Protection and Affordable Care Act (ACA) on the U.S. health insurance industry has become more pronounced in the past year on carriers large and small, particularly as the enrollment population continues to be older and riskier, which is having a larger negative financial impact than originally anticipated, according to a new A.M. Best special report.
According to the 2016 Review & Preview Best’s Special Report, titled, “ACA Impact Challenges Insurers,” health insurers’ earnings for 2015 were mixed. The publicly traded companies fared well and reported an increase in earnings through Sept. 30, 2015. Insurers’ earnings have been impacted by the ACA health insurer fee, which was $11.3 billion in 2015 and is a similar amount for 2016. Furthermore, the fee is not tax-deductible; and therefore, it has a greater impact to net income. Many insurers have been able to recapture the fee through premiums; however, some government-funded programs are more sensitive to increases in premiums, and as a result, carriers have not been able to consistently pass the fee along in rates.
The report states that to alleviate the growing financial pressure health insurers are looking at initiatives to better control the cost of care, which includes disease management programs and better coordination of care. As a result, there has been increased collaboration with providers that can benefit all parties involved, including the patient.
Merger and acquisition activity accelerated in 2015 as several large transactions were announced during the year. The transactions involved both insurance companies and other health-related businesses and are being driven by the desire for further diversification, both product and geographic, as well as an increase in scale.
A.M. Best’s outlook for the U.S. health insurance sector was recently revised to negative from stable, largely related to earnings and capitalization pressures resulting from issues related to the ACA. A.M. Best believes that the industry pressures will continue to negatively impact earnings. The lower earnings and growth in premiums from increased membership will result in lower levels of risk-adjusted capitalization. Furthermore, due to the merger and acquisition activity, earnings will face additional pressure at larger carriers with increased financial leverage as higher debt loads will need to be serviced. A.M. Best believes that many of these pressures will not subside in the near term; and consequently, there could be more negative rating actions on health insurers.
This report also explores other trends and challenges in the health insurance sector, including how health insurers are viewing cyber risk, along with changing consumer demands, emerging member-focused insurers, rising pharmaceutical costs and 2015 rating trends. To access a copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=246597.
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