Health Insurance Industry Stable In 2021, Moody’s Reports

The 2021 outlook for the U.S. health insurance industry is stable because the challenges associated with the COVID-19 pandemic are anticipated to remain manageable, Moody's Investors Service said in its annual outlook. The policy and legal environment are key challenges, but the well-diversified business models of the sector will help stabilize performance.

"The US health insurance industry successfully managed the coronavirus pandemic in 2020 and will do so again in 2021," Moody's assistant vice president Stefan Kahandaliyanage said. "Coronavirus costs, including vaccines are largely incorporated into 2021 pricing, and COVID is a key catalyst for telehealth utilization, a positive from a customer engagement and cost perspective. We believe the uncertainty of the macro environment will continue to drive enrollment in government businesses, but will hamper commercial earnings growth due to high unemployment."

Moody’s sees five factors impacting the health insurance industry in 2021.

1. The pandemic impact lingers on, fragile economic conditions expected. COVID-19 diagnosis and treatment costs, including cost-sharing waivers, are likely to continue through the first half of 2021. The impact of vaccine costs will be manageable. Deferment of non-essential procedures is possible in certain situations, but unlikely to be widespread as occurred in 2020. Fragile economic conditions, including high unemployment, will pressure commercial enrollment, but will be offset by gains in Medicare and Medicaid enrollment. Overall, Moody’s forecasts mid-single digit earnings growth in 2021.
2. Policy uncertainty and Affordable Care Act lawsuit are manageable risks. President-Elect Joe Biden’s health care policy could foster increased individual market enrollment and expand Medicare and Medicaid, which could be positive, but a public option could be negative, pressuring commercial health insurance. A lot hinges on which party ultimately has a majority in the Senate.
3. Large mergers and acquisitions unlikely. Moody’s expects insurers to continue to acquire non-regulated health service businesses to deepen vertical integration, but large transformative deals are unlikely. Smaller, tuck-in insurance acquisitions to improve geographic diversification or under-scaled businesses are more likely. Moody’s expects leverage to improve in the absence of outsized M&A.
4. Telehealth and digital care expands. Telehealth usage soared during the pandemic, Moody’s reported. The industry is also making progress with remote monitoring and using technology to close care gaps. Telehealth and digital care can improve member engagement, medication adherence and lower costs. Moody’s expects insurers to continue to focus on managing more members in lower-cost sites of care such as outpatient facilities, retail outlets and in the home.
5. Business profiles have evolved and improved. Moody’s said many of its rated issues have grown their scale significantly over recent years, taken market share and added capabilities.

Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected]. Follow her on Twitter @INNsusan.

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Susan Rupe is editor in chief, magazine, for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected].