Dive Brief:
- Analysts at Standard & Poor's Ratings Services have assessed how the Affordable Care Act has affected the 37 US Blue Cross and Blue Shield companies in a commentary detailed by LifeHealthPro.com.
- Most of the companies have beyond sufficient capital to handle the financial pressures of the PPACA, but they could eventually suffer a diminished ability to repay loans.
- What rating agencies think about the Blues companies matters to health insurance providers because credit ratings affect whether insurers can get capital from investors, and how much they have to pay for that capital. That, in turn, affects what the insurers can do and how much customers trust the insurers to pay claims.
Dive Insight:
What makes things really interesting about the Blues is that in most states, according to the analysts, they obtained a dominant share of the PPACA exchange qualified health plan (QHP) enrollees—so much so that the PPACA exchanges "might as well be called 'Blue Exchanges,'" the analysts write.
As a result, the Blues "will reap the benefits or suffer the consequences of being early adopters," the commentary predicts. So far, the Blues' median return on revenue suggests that the consequences have outweighed the benefits.
The S&P rates show that more than 70% of the Blues companies qualify for a AAA-level rating based solely on capital, and the analysts say the companies have sufficient financial flexibility and relatively low-risk investment portfolios.
However, profitability levels were shown to vary widely between the companies, and their median return on revenue dropped following the implementation of major PPACA provisions and programs that began on Jan. 1, 2014, from more than 4% in the third quarter of 2013 to 1.5% during the third quarter of 2014.
That kind of drop may be considered steep given that some of the companies now face low profit margins as a result of their strategy to dominate the exchanges in 2014.
"Some of the Blues had priced aggressively on the exchanges to maintain their strong positions in the individually insured marketplace," the analysts write. "Although the strategy worked when it came to membership gain, with most Blues coming away with the vast majority of members that signed up in their respective regions, it may have come at the cost of weakened underwriting performance."
The PPACA fees, rules and requirements also affect the products the Blues sell outside of the exchange system.
Ultimately, the companies will have to defend their low margins or face a possible hit to their credit quality.
The member companies of the Blue Cross and Blue Shield Association provide health insurance for more than 100 million Americans, and many of the companies are reported to have supported the health reform debates that gave rise to the PPACA, the creation of the PPACA public exchange system, and numerous other PPACA programs and provisions—so again, in this sense the Blues will face the benefits or consequences of their early action.