Impact of the coronavirus also holds the potential to affect health insurers negatively.
OLDWICK, N.J., February 27, 2020—AM Best expects U.S. health insurance companies to sustain profitability in 2020. However, according to AM Best’s 2020 Review/Preview market segment report, earnings may temper due to lower rate increases for many products, anticipated higher utilization and medical cost trends and the return of the Affordable Care Act-imposed health insurance fee. The impact of the coronavirus also holds the potential to affect health insurers negatively.
A new Best’s Market Segment Report, titled, “Review & Preview: U.S. Health,” states that health insurers’ earnings reached record highs in 2019. Key drivers of the growth in earnings include continued improvement in the individual Affordable Care Act (ACA) exchange market business; broad-based decline in utilization; and persistent lower medical cost trend, especially for prescription drugs. Additionally, publicly traded health companies reported GAAP earnings with similar trends of strong earnings. Premium revenue for the publicly traded segment grew by 13% on average, driven mainly by premium increases as overall membership remained essentially flat.
Medicare and Medicaid
Medicare and Medicaid remain a key focus for health insurers as they represent sizable portions of the population. AM Best expects Medicaid earnings to remain profitable in 2020 despite enrollment declines in recent years, including in 2019. Health insurers remain heavily focused on the senior market, and the trend of premium and earnings growth will continue for the foreseeable future; however, Medicare Advantage products typically have low margins in the 1-3% range, and these are pressured further in years when premiums are subject to the health insurer fee.
Given the upcoming presidential election, AM Best expects to see less regulatory action at the federal level, but legal challenges to the ACA persist that could cause market disruption depending upon the outcomes. AM Best expects health insurers to remain well-capitalized in 2020, and improvement in carriers’ risk-adjusted capitalization levels over the past few years should allow the majority to withstand any near-term pressures that could occur.
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AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.