Health insurers’ outlook stable as commercial growth offsets weak MA

In 2024, the U.S. health insurance industry will face higher usage, lower margins, slower earnings growth and potential membership declines in certain segments, Moody's Investors Service reports. However, positive long-term shifts in the industry, including vertical integration, advances in technology and value-based care will continue. In addition, major policy changes are unlikely in an election year, and Moody's outlook for the industry over the next 12-18 months remains stable.

Medicare Advantage under pressure from higher usage and lower reimbursement rates. Medicare Advantage is still the main driver of membership growth in the health insurance industry and continues to take market share from traditional Medicare. However, the spike in usage trends that MA experienced during 2023 will persist in 2024, impacting margins. Additionally, MA will be under pressure from lower reimbursement rates in 2024, with MA experiencing its first rate decline since 2015.

Medicaid eligibility redeterminations will lead to a net loss in membership in the first half of 2024. Redeterminations resumed on April 1, 2023, and about14 million people were disenrolled during 2023. However, Medicaid enrollment increased by 23 million members
during the pandemic, and was down by less than 6 million members as of September 2023. More members will lose coverage in the first half of 2024, and many of those will end up in the
commercial and individual markets.

Commercial membership likely to grow in line with the economy. The economy grew
much faster than expected in 2023, and unemployment remains low. Because commercial
membership is correlated with the economy, Moody's expects commercial membership to
grow in 2024, driven in part by potential new members joining as a result of Medicaid
redeterminations.

Mergers and acquisitions could be in the spotlight in 2024. Vertical integration remains attractive as a means to lower costs, but one transformative deal was scuttled late last year. Cigna is selling its Medicare businesses to focus on its commercial and individual insurance businesses.