Health insurers’ performance stable in 1Q 2023, Fitch reports

Health insurers saw generally stable performance in the first quarter of 2023 despite continued uncertainty, Fitch Ratings reported.

Large, geographically diversified health insurers continued to generate stable results into 2023, despite continued challenges in the broader health care sector, Fitch said.

Profitability, as measured by operating EBITDA margin, improved modestly to 7.7% in first quarter 2023 from 7.6% for first quarter 2022 for the seven largest U.S.-based, publicly traded health insurers, which Fitch Ratings estimates to account for approximately 70% of privately insured enrollment in the U.S. at the end of 2022.

These companies reported a 10.5% increase in revenue for the year-over-year quarter. Less diversified insurers reported significantly more varied operating results, reflecting local market conditions.

Financial leverage remains reasonable: Financial leverage for large public health insurers increased moderately in first quarter 2023 to 43% from 41% at year-end 2022, reflecting an increase of approximately 11% in outstanding debt, to $167 billion.

Affordability pressures mounting: Cost pressures at the provider level of the health care system continue to increase, Fitch said. This reflects persistent staffing shortages and higher general inflation that began in the second half of 2021, as well as the end of federal relief funds provided by the CARES Act. Health insurers were somewhat insulated from these heightened pressures during 2022 due to multiyear provider reimbursement contracts typically used in the industry.

However, these cost pressures are being addressed in ongoing provider contracting negotiations, and Fitch expects them to begin to emerge in reimbursement rates and follow through into premium rate increases over the next few years. The result is expected to be heightened public discourse around health care costs for consumers.