Health insurer outlook is stable despite headwinds: Moody’s

As 2023 attracts to an in depth, Moody’s Traders Service stated in a latest report that the full-year outlook for well being insurers stays steady regardless of upcoming challenges from adjustments to Medicare Benefit star scores and the GLP-1 class of weight reduction medication.

Citing a decline in Medicaid memberships because of the resumption of eligibility evaluations, Moody’s tasks decrease income development for well being insurers this 12 months although their Q3 earnings met Q2 efficiency and the trade’s stability is in step with expectations.

Nonetheless, the agency stated that monetary outcomes throughout the trade met its forecasts regardless of sure unexpected headwinds, equivalent to a spike in medical utilization amongst Medicare Benefit members.

In June, UnitedHealth (NYSE:UNH), the biggest managed care participant within the Medicare Benefit market, warned that the post-COVID normalization of care utilization amongst seniors would damage its Q2 medical care ratio.

UNH shares, together with these of its most important rival within the MA market, Humana (NYSE:HUM), fell in response alongside their friends, Alignment Healthcare (ALHC), Clover Well being (CLOV), and CVS Well being (NYSE:CVS).

Moody’s argues that whereas increased MA utilization continued into Q3, the pattern stabilized however with out an enchancment.

Regardless of a disruption to well being insurers from ongoing Medicaid redeterminations as anticipated, its year-to-date impression has to this point been “comparatively small,” the analysts argued, including that almost all members who misplaced protection are anticipated to enroll in different well being plans.

In the course of the pandemic, a three-year pause in eligibility evaluations led to a 32% rise in Medicaid memberships amongst market gamers equivalent to Centene (NYSE:CNC), Elevance Well being (ELV), and Molina (MOH).

“As anticipated, that is considerably lowering the earnings development fee of the well being insurers we fee, however it’s only one in every of a number of drivers of this pattern,” the analysts wrote, including that “we anticipate that a lot of the disenrollees will re-enroll within the particular person market or in employer-based insurance coverage.”

Nonetheless, Moody’s expects long-term implications from how Medicare Benefit star scores are calculated. The yearly up to date system categorizes MA plans on a one-to-five performance-based scale, and plans with a ranking of 4 or 5 stars are eligible to obtain bonus funds after they search Medicare reimbursements.

In October, Elevance (ELV) shares fell after disclosing that the proportion of its MA members in plans with scores of 4 stars or increased had dropped to 34% for the 2024 ranking 12 months from 64% a 12 months in the past.

Different notable traits within the trade embody extremely in style however pricey weight-loss medication often known as GLP-1 receptor agonists from Novo Nordisk (NVO) and Eli Lilly (LLY).

Moody’s argued that whereas well being insurers can replicate their prices in coverage charges, it is a threat for his or her company shoppers if GLP-1 utilization will not be managed appropriately.

“Well being insurers can embody these prices in coverage costs,” the analysts wrote, including that “nevertheless, for company shoppers who contract with well being insurers for administrative providers solely and in any other case self-insure, the chance is increased, particularly if utilization will not be successfully managed.”