Industry Trends

Fitch Ratings: Continued Strong Operating Performance Supports Stable Outlook for US Health Insurers

Supported by low unemployment, manageable medical cost trend and solid growth in government-funded business

Chicago-10 December 2019 — Full year 2019 operating performance within the U.S. health insurance sector is expected to extend the trend of solid results established in recent years, and there are strong indications that this trend will be extended further in 2020. As a result, Fitch Ratings maintains a Stable sector outlook and Rating Outlook for the health insurance sector in 2020.

Fitch currently has Stable Outlooks on the vast majority of its ratings in the U.S. health insurance sector. However, continued progress in post-merger integration and deleveraging activity could result in additional Positive Rating Outlooks in 2020.

“In addition to sound operating fundamentals among the vast majority of sector participants, the health insurance sector continues to benefit from low unemployment, manageable medical cost trend and solid growth in government-funded business,” said Brad Ellis, Senior Director. “Continued integration related to recent large consolidation activity and associated scale benefits, as well as ongoing execution of medical cost management initiatives are expected to augment existing attractive market conditions to drive strong operating performance through 2020.”

Average Medical Loss Ratio: 83.6%

Fitch expects the average medical loss ratio (MLR) for the largest eight publicly held health insurers in the U.S, which together reported approximately 165 million medical members as of Sept. 30, 2019, to be between 83.6% and 83.9% for full year 2019. Despite an anticipated modest increase in the rate of growth of U.S. health expenditures, Fitch expects the average medical loss ratio among these companies to decline to approximately 82.5% in 2020. A primary factor driving the lower average MLR for 2020 is the return of the health insurer fee, which was suspended in 2019.

As CVS Health Corporation and Cigna Corporation continue the process of integrating Aetna Inc. and Express Scripts Inc., respectively, and Centene Corporation is expected to complete its acquisition of WellCare Health Plans, Inc. in first half 2020, Fitch believes that the potential for material consolidation activity will be significantly reduced in 2020. Fitch expects consolidation activity in 2020 to focus more on modest buildout of care delivery opportunities in various regions or care management and technology initiatives.

Healthcare will certainly continue to be one of the most prevalent discussion topics among candidates for the U.S. presidency in 2020, but Fitch does not anticipate significant change in the structure of the U.S. healthcare system over the next couple of years...

Healthcare will certainly continue to be one of the most prevalent discussion topics among candidates for the U.S. presidency in 2020, but Fitch does not anticipate significant change in the structure of the U.S. healthcare system over the next couple of years. While the health insurance sector has faced the risk of a replacement of the current private health insurance system with a single-payer system for decades, and this risk has been incorporated into Fitch’s ratings, Fitch believes that public resistance to transformational change in the way healthcare is delivered and financed is slowly eroding as healthcare costs account for an increasing share of consumer expenditures.

For more information please see “Fitch Ratings 2020 Outlook: U.S. Health Insurance,” available at www.fitchratings.com.