Dive Brief:
- Health insurers would be better-protected during an economic downturn now than they were during the last downturn in 2008, due in part to Affordable Care Act provisions like Medicaid expansion and the exchanges, according to a Moody's industry assessment. Lower employment levels would still take a toll, however, as commercial enrollment would drop.
- Additionally, higher medical loss ratios and negative impacts to investment portfolios would still be felt by payers in a recession. On the flip side, Moody's estimates makers of generic drugs would benefit from an economic downturn as demand for cheaper drugs would rise.
- Moody's notes that while hospitals are generally recession-resistant, they would experience a decline in volumes and suppressed reimbursements, with not-for-profit hospitals being more prone than for-profits to impacts of an economic downturn.
Dive Insight:
The healthcare industry has experienced vast regulatory changes since the last recession that, if they remain intact, would end up preventing insurers from bearing the full brunt of headwinds they faced in 2008. Some sectors even stand to benefit from an economic downturn, according to Moody's.
The ratings agency notes that while the eight publicly-traded health insurers that have remained publicly-traded since the Great Recession saw an earnings decline of 37% in 2008 compared to a 78% decline for the S&P 500, revenue grew at a slower rate.
The next economic downturn would be kinder to insurers with a strong presence in the ACA exchanges or a similarly strong focus on Medicaid: Companies such as Centene and Molina would be "well-positioned" to benefit from the increase in unemployed individuals heading to the exchanges or qualifying for Medicaid, according to Moody's.
Healthcare has changed in other ways since 2008. Bigger, vertically-integrated companies would increase the sector's resilience during an economic dip — though there are exceptions. Cigna and Aetna, Moody's notes, have "weaker financial flexibility and lower ratings as a result of acquisitions," and an economic downturn would throw a wrench in those companies' plans for growth.
Not-for-profit hospitals would be "particularly sensitive" to the impacts on insurers, Moody's notes, as more uninsured patients would increase bad debt and lower revenue per patient. Not-for-profit hospitals have already seen expenses grow faster than revenues in recent years, and commercial payers' negotiating power would compound those growth rates as reimbursements would certainly fall in a downturn.
Single-site not-for-profits would be the "most exposed" in this situation, according to Moody's, as larger systems would be better-insulated by their diversification.