Moody's: Uncertain healthcare landscape leads to negative outlook

for US health insurers

Global Credit Research - 23 Jan 2014

Insurance companies, long held in high ESTEEM in the finance world, because of their wide base of investment and astute leadership are beginning to feel the effects of ObamaCare even before they begin paying reimbursements to providers, hospitals, and enrolled providers.

Moody's Corporation is an essential component of the global capital markets, providing credit ratings, research, tools and analysis that contribute to transparent and integrated financial markets.

Moody's changed the outlook for US health insurers to negative from stable, as implementation of the Affordable Care Act (ACA)continues to create uncertainty for the industry, says Moody's Investors Service in its new industry outlook "US Healthcare Insurers: Outlook Changed to Negative from Stable."

The ACA—signed into law in March 2010—seeks to increase affordability of health insurance and expand both public and private insurance coverage through a number of mechanisms including exchanges, mandates and subsidies.Uncertainty over the demographics of those enrolling in individual products through the exchanges is a key factor in Moody's outlook change, says the rating agency. Enrollment statistics show that only 24% of enrollees so far are aged 18-34, a critical group in ensuring that lower claim costs subsidize the higher claim costs of less healthy, older individuals. This is well short of the original 40% target based on the proportion of eligible people in this cohort, says Moody's.

Looking forward, Moody's expects reduced net earnings margins of approximately 2% in 2014, compared to an average of 3% the previous year and smaller overall membership growth of approximately 1%, down from 3% in 2013, with company strategies continuing to focus on revenue and income diversification.

Still, these changing dynamics will have an uneven effect on insurers, as the impact of these factors will vary by market segment and geography. Moody's view continues to be that the larger and more diversified insurers will be better positioned, both financially and strategically, to meet the challenges facing the sector.

Earlier this week, the conservative American Action Forum released a report which found"that after accounting for subsidies and cost-sharing, 6 out of 7 uninsured, young adult households will find it financially advantageous to forego health coverage, and instead pay the mandate penalty and cover their own health care costs.

*A reader points out that there's a difference between a negative outlook and a formal downgrade, which is what I originally implied. A credit downgrade is likely, but has not yet occurred.

Nevrtheless the Perverse Incentives of the Obama Care Act (Affordable Care Act) come into play to increase the shortfall of funding health insurance for all, with no limitations..

The American Action Forum prints a readable and understandable explanation of how ObamCare is supposed to work.

This short infographic illustrates the reverse logic for young people