OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has maintained a negative outlook on the U.S. health insurance sector for 2017, citing the pressure being placed on health insurers’ earnings and capitalization from the Patient Protection and Affordable Care Act (ACA) and growth in lower margin product lines.
A new Best’s Briefing, titled, “A.M. Best Maintains Negative Outlook on the U.S. Health Industry,” states that although A.M. Best acknowledges that the commercial group health market remains profitable, the losses experienced on the health insurance exchange business have led to a lower level of earnings for the third consecutive year. The exchange population continues to be high risk and a greater utilizer of services. For 2017, the number of carriers that exited the exchanges grew, and this has resulted in more markets with just a single carrier participating. Premium increases in 2017 escalated in many markets as well, which could lead to fewer healthier participants electing coverage, especially if the individual is paying a significant portion of the cost. This would negatively impact the risk pool of the exchange population.
Moreover, two of the three Centers for Medicare and Medicaid Services (CMS) programs designed to stabilize claims experience for insurance carriers concluded at the end of 2016. Known as the 3Rs, they were made up of: risk corridors, risk adjustment, and reinsurance recoverables. Only the risk-adjustment program remains for 2017.
Health insurers have experienced significant growth in the government-funded sector, which includes Medicaid managed care and Medicare Advantage. The growth in Medicaid managed care has been driven by the expansion in numerous states for program eligibility to 133% of the federal poverty level. While Medicaid managed care has been profitable for some companies, margins could compress with contract renewals. However, even with margin compression, A.M. Best anticipates earnings should remain favorable. Given the aging population, carriers also have expanded into the Medicare Advantage space with a focus on the star bonus program; however, losses of a four-star or higher rating have led to membership declines.
Although not factored into A.M. Best’s 2017 outlook on the U.S. health insurance industry, it is highly anticipated that changes will be made to the ACA due to the results of the U.S. presidential election and Republican control of Congress. While it is expected that the repeal may be passed in the first half of 2017, the replacement plan may not be passed until later in the year. A.M. Best does not expect any significant impact to the ACA for 2017 and that the earliest significant changes could occur is 2018, although that would depend upon when a replacement plan is developed and passed.
A.M. Best believes overall losses may improve in 2017 for some carriers due to rate increases, product redesigns and market exits. However, A.M. Best still anticipates losses on carriers’ exchange business due to the higher risk and utilization trends of this population. Furthermore, in 2017, it is possible that the higher premium cost coupled with uncertainty around the future access to comprehensive benefits may put additional pressure on utilization, as members might be accelerating treatments prior to repeal and replace.
For the full copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=256767.
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