ACA & The New Normal

U.S. Health Insurance Market Outlook Maintained at Stable

Strong earnings among carriers, lower utilization and medical cost trends

A new Best’s Market Segment Report also cites fewer new higher cost prescription drugs coming to market

OLDWICK, N.J., December 11, 2019—AM Best has maintained its market segment outlook for the U.S. health insurance industry at stable for 2020, citing continued strong earnings among carriers, which in part has strengthened risk-adjusted capitalization, and lower utilization and medical cost trends that have lasted longer than expected.

A new Best’s Market Segment Report, “Market Segment Outlook: U.S. Health,” states that factors underlying the growth in earnings in addition to the lower utilization trend include fewer new high cost prescription drugs coming to market, which has helped to stabilize escalating prescription drug costs, and favorable claims experience in the individual Affordable Care Act (ACA) exchange market product. The stronger capitalization levels also have been aided by the rate of increase in capital and surplus, which has outpaced growth in net premiums written in the past few years.

Key factors that could negatively affect health insurers in the coming year include an increase in medical claims above pricing assumptions and disruption from regulatory actions. Large-scale legislation that would impact the ACA in 2020 is unlikely; however, the uncertain outcome of an appeal of a federal district court ruling in Texas regarding the ACA’s validity and efforts by the Trump administration and in GOP-run states to support non-ACA compliant health plans, could place pressure. Furthermore, the return of the health insurer fee in 2020 may compress margins.

The report outlines other factors driving the stable market segment outlook, including:

  • AM Best expects premium growth to be tempered in 2020 as rates for the individual ACA exchange and Medicare Advantage products are declining in many markets; however, the lower rate of premium growth should still result in continued improvement in risk-adjusted capitalization in 2020; and
  • Net income in 2019 and in 2020 for many of the Blue Cross Blue Shield plans will benefit from the elimination of the alternative minimum tax under U.S. tax reform.

This report also looks at the disability income (DI) and supplemental health markets, where macroeconomic factors continue to be major drivers of production and underwriting results, particularly in the DI segment. Sustained economic growth and good employment numbers, combined with rising interest rates, is expected to continue to provide stability in the disability income segment.

Key factors that could negatively affect health insurers in the coming year include an increase in medical claims above pricing assumptions and disruption from regulatory actions...

Similar to that experienced in the employee benefits space, the supplemental and voluntary benefits markets also have seen considerable interest by new entrants and a high level of competition. Sales growth has fluctuated widely, but expansion in the supplemental health space experienced the last few years has continued in 2019, led by dental and DI sales, but other product lines such as limited benefit, short-term medical, critical illness and senior-focused products also have seen favorable growth.

To access a full copy of the market segment report, please visit here.

To view a video with Ken Frino, managing director, about the U.S. health industry outlook, please visit here.