OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has commented that the U.S. Supreme Court ruling on the Patient Protection and Affordable Care Act (PPACA), commonly referred to as health care reform, will not have a ratings impact to the majority of health insurers. Earlier today, the U.S. Supreme Court issued its ruling on PPACA and determined that the law is upheld including the individual mandate. However, A.M. Best is maintaining a negative view on smaller companies that specialize in the small group and individual health sectors over concerns about profitability due to the minimum loss ratio requirement.

Many carriers have diversified over the past few years and offer products to multiple segments, including individual, employer groups and government-sponsored (both Medicare and Medicaid managed care), which provides for more diversified membership, revenue and earnings. Furthermore, several of the largest carriers have expanded with supplemental business that is more service oriented and non-regulated. These complementary products provide health insurers with varied sources of earnings and cash flows, which can enhance sustainability of operating results.

However, A.M. Best has concerns about profitability for smaller companies that specialize in the individual and small group markets. Typically, these segments have a lower medical loss ratio and a higher administrative expense ratio. PPACA has a requirement for a minimum medical loss ratio, and while these carriers have reduced broker commissions, their lack of economies of scale may impact their ability to lower administrative expenses enough to comply and remain profitable. Furthermore, these companies tend to have less diversified product portfolios than those of larger carriers, and could be more negatively impacted by the implementation of exchanges in 2014.

A.M. Best will be following up in the near term with additional commentary regarding the U.S. Supreme Court ruling.

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A.M. Best Co.
Sally Rosen, 908-439-2200, ext. 5280
Managing Senior Financial Analyst
sally.rosen@ambest.com
or
Kenneth Frino, 908-439-2200, ext. 5012
Group Vice President
kenneth.frino@ambest.com
or
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
rachelle.morrow@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com

Source: A.M. Best Co.