Moody's Investors Service has revised the outlook for health insurers from stable to negative in light of the uncertainty created by the implementation of the Patient Protection and Affordable Care Act.
Moody's predicts reduced profit margins of 2 percent this year, compared with an average of 3 percent the previous year. Additionally, overall membership growth is expected to decline 1 percent from 3 percent in 2013. Overall, Moody's expects larger and more diversified insurance companies will fare better.
The demographics of the people enrolling in health plans through the PPACA exchanges was one of the main drivers of the outlook revision. As of Dec. 28, only 24 percent of the nearly 2.2 million people who had selected plans through the new marketplaces were between the ages of 18 and 34, according to HHS.
The marketplaces need to enroll young adults in about the same proportion they represent in the pool of potential individual insurance market enrollees (40 percent) to counteract the higher claims costs of older, less healthy enrollees, according to a report from the Kaiser Family Foundation. Otherwise, insurers' total costs for the exchanges will be higher than premium revenues.
Furthermore, it's unclear how an industry assessment tax that kicks in this year will affect health insurers, according to Moody's. Although some insurers have factored the tax into their premium calculations, the resulting revenues may not be enough to cover their share of the assessment. Medicaid business is of particular concern, since insurers can't pass additional costs on to consumers and it's uncertain whether states will allow insurance companies to adjust Medicaid reimbursement rates in response to the tax.
The outlook revision builds on a Moody's report released late last year, which concluded last-minute PPPACA policy changes such as enrollment deadline extensions for the exchanges would create uncertainty for health insurers and ultimately have a negative effect.
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