OLDWICK, N.J.--(BUSINESS WIRE)--U.S. health insurance companies remained profitable in 2016 as net income improved to $9.4 billion at third-quarter 2016 compared with $8.7 billion in the same prior-year period, despite the negative impact for many plans from the health exchange marketplace. According to A.M. Best’s 2017 Review/Preview special report, a majority of carriers remained profitable in other segments, particularly employer group, Medicare Advantage and Medicaid, which helped to offset weak earnings from the exchange line of business.
According to the report, titled, “Health Insurers Withstand the ACA Impact, But New Uncertainty Looms,” some of the issues stemming from Patient Protection and Affordable Care Act (ACA) include: changing rules; failing plans, particularly the consumer operating and oriented plans (CO-OPs); higher utilizers of treatments on exchanges; fewer healthier and/or younger exchange enrollees; numerous exchange market exits by plans; large losses from the exchange line of business; and lower levels of risk-adjusted capitalization. A.M. Best expects the exchange business to remain a drag on earnings for 2017. Coupled with uncertainty surrounding the potential repeal and replacement of the ACA, A.M. Best believes that many of these pressures could result in negative rating actions on health insurers.
The improvement in health insurers’ earnings in 2016 was driven by several factors that included: the assumption to include the risk corridors in 2015, but not 2016 pricing; premium rate increases; continued profitability from other lines of business; flat health insurer fees from 2015-2016; and corrective actions taken to improve profitability on poor performing blocks. The report also notes that the average underwriting and net income at the non-public Blue Cross Blue Shield companies turned profitable for the first nine months of 2016 compared with losses in 2015.
Merger and acquisition (M&A) activity slowed in 2016, as many large health insurer mergers were still in the midst of closing on deals announced in 2015 and not active in the market. A.M. Best expects M&As to continue in 2017, but likely will include non-regulated businesses that support health insurance operations, including technology, distribution and health care delivery.
A.M. Best is maintaining a negative outlook on the health insurance industry for 2017. A.M. Best does acknowledge that the commercial group business remains profitable and the exchange business represents a small portion of insurers’ total revenues and earnings; however, the negative impact from the exchanges has led to an overall lower level of earnings. Additionally, this combined with the rate of growth in net premiums outpacing capital has led to lower levels of risk-adjusted capitalization for many insurers. A.M. Best will monitor industry trends, operating results and levels of risk-adjusted capitalization, and expects to issue briefings to address the potential impact of any ACA repeal and replacement plan to health insurers.
To access a copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=258288.
In addition, to view an interview with A.M. Best Senior Director Sally Rosen and Associate Director Doniella Pliss on the U.S. health sector, visit http://www.ambest.com/v.asp?v=healthrp17.
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