Health Insurers Showed Weaker Growth In 4Q, Moody’s Reports

Net earnings growth for 2021 was 3% among Moody's Investors Service's surveyed group of publicly traded health insurers, below Moody's forecast of mid-to-upper single digits and also below growth in recent years.

The weaker growth largely reflected higher COVID-19 costs from the Delta and Omicron
variants. It also included poor performance on the individual market as the extended special
enrollment period led to significant growth, but also adverse selection and high medical
costs. For 2022, Moody's predicted net earnings growth will likely accelerate to the low double digits, driven by lower COVID-19 costs and better performance on the individual market. Medicaid results will likely be weakened by the resumption of eligibility redeterminations, which could be begin in April.

Notable events:

Competitive pressure intensifying in Medicare Advantage. Medicare advantage
growth in the 2022 annual enrollment period was not uniformly strong as in recent years.
Humana's enrollment grew only approximately 3%, well below initial forecasts, and Centene
and Cigna expect membership growth to slow in 2022. Humana cited increased outreach to
beneficiaries from competitors and aggregators that encourage people to call the number
on their TV screen to get the best deal. It seems clear that competition is forcing more of a
trade-off between growth and margin.

Déjà vu all over again in the individual market. The Biden administration, in its efforts to
expand insurance coverage, established a special enrollment period for the ACA individual
market exchanges and increased subsidies, raising enrollment by 2.8 million. But in a
throwback to the early days of the ACA, it also led to significant adverse selection, which
caused performance to decline. The insurers have responded with pricing actions and product
redesign, which could lead to lower enrollment but better performance.

Expanded subsidies on the exchange set to expire at year-end. Temporary increases in the subsidies in the individual market were enacted early in 2021, contributing to record
enrollment of 14.5 million during the 2022 annual enrollment, about 2.5 million more than
2021. Without new legislation to extend them, the increased subsidies will expire at yearend, which will adversely impact membership.

A single-payer bill failed in California. A single-payer health insurance bill, AB 1400,
ultimately did not come up for a vote in the California Assembly in late January. The bill
would have replaced the 34 million Californians in commercial insurance, Medicare, Medicaid and the individual market with CalCare, a state-run program.

A Stable Outlook For 2022 With Improved Earnings

In December, Moody's affirmed its stable outlook for the health insurance sector. Earnings growth in 2021 was muted for Moody's surveyed companies, reflecting elevated COVID-19 costs exacerbated by the Delta and Omicron variants. Despite the weaker growth, health
insurers' credit strength was largely unaffected. In fact, the growing diversification of the industry, with the increasing investment in unregulated health services, has boosted companies' credit strength, despite incrementally higher leverage. For 2022, earnings growth is likely to pick up, based on improved performance in the individual market, better commercial enrollment trends in line with projected economic growth, and continued growth in Medicare Advantage, offset by declining Medicaid enrollment once eligibility redeterminations resume, which is likely to happen midway through the year