Moody’s 2022 outlook for U.S. health insurers is stable with mixed enrollment trends and lower COVID-19 impact.
Credit themes for health insurers include:
- Economic outlook – limited inflation impact in 2022. Inflation is unlikely to impact health insurers’ earnings or credit characteristics significantly in the short term because health insurers reprice their product every year. Because medical costs are about 80% of total expenses, medical cost inflation can quickly be reflected in premiums. Sustained inflation, however, although not in Moody’s baseline forecast, could reduce earnings if providers require increases in commercial payments in excess of inflation. Separately, the decline in unemployment will likely boost the commercial segment.
- Policy changes in Build Back Better are credit positive. The current proposals impacting health insurance in the Build Back Better bill are more credit positive than those of a year ago. The proposals include expanding subsidies in the individual market, enabling access to the approximately 4 million individuals in the 12 states that did not expand Medicaid, and would allow the federal government to negotiate drug prices in Medicare. The proposals could increase enrollment and improve medication adherence, both credit positive.
- The individual market is likely to rebound. The individual market experienced strong enrollment growth in 2021, benefiting from expanded subsidies and a six-month special enrollment period. However, profitability was down amid greater competition and higher medical costs. Performance will likely improve in 2022 as the new members have now been through clinical care programs.
- Leverage increased in 2021 on M&A. In 2021, there were six significant transactions with five involving noninsurance capabilities (two have not yet closed). This is part of the ongoing evolution and is vital to the growth of the industry and to improving health outcomes. Moody’s expects these types of transactions to continue. But leverage has increased as a result and in 2022 we expect more focus on deleveraging.
- COVID-19’s elevated costs will abate. COVID-19 lowered earnings in 2021, reflecting elevated testing and treatment costs as well as COVID-19-related risk corridors and other steps by states to recover money paid to insurers in 2020 that wasn’t used because of extensive care deferrals. In 2022, there will likely be lower COVID costs and higher Medicare payments. However, it is too early to declare victory. Potential threats could emerge from new variants and the medical impact of those suffering with long-COVID is not well understood.
- Specialty pharmacy costs are rising. Specialty drugs are in many cases miracles that extend life and improve life, but they come with a steep price tag. Medicare is bearing the brunt of this. Controlling these costs is a societal issue, not primarily an insurance issue.