Dive Brief:
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A.M. Best has revised its outlook for the health insurance industry from “negative” to “stable” for 2018.
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The rating agency said the reason for the change is that health insurers have adapted to the pressures of the Affordable Care Act (ACA) and improved earnings and risk-adjusted capitalization levels, according to its new report, Market Segment Outlook: U.S. Health.
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A.M. Best said multiple payer product lines remain profitable, including the employer-based market, Medicaid and Medicare Advantage (MA).
Dive Insight:
The stable outlook means market trends should have a “neutral influence on companies operating in that market segment over the next 12 months,” according to the report. Though A.M. Best said there are negative factors affecting payers, insurance companies have adapted. A.M. Best “does not expect any significant deterioration in market conditions over the next year.”
The employer-based market remains profitable. Payers have seen stable or declining medical cost trends because of steady prescription drug costs and lower utilization, according to A.M. Best. Meanwhile, MA remains a growing sector for payers, while Medicaid market growth has slowed but continues to be profitable.
There has been much written about problems with the ACA and individual exchange market. However, the ratings agency said the market is a small segment of business, so other product lines have offset reported losses in the individual market. Also, in reviewing 2016 and 2017 results, A.M. Best found that payers’ exchange business improved thanks in part to consecutive years of high rate increases and narrowing provider networks. Narrow provider networks have become common in the individual and MA markets.
Despite the individual market having higher risk members who use more healthcare services, A.M. Best said the exchange membership has stabilized. Healthcare use and medical cost trends in that market have also been relatively flat over the past two years despite threats during the 2016 presidential campaign and during the first year of the Donald Trump presidency.
Speaking of the failed “repeal and replace” movement on Capitol Hill, A.M. Best suggested Congress “may choose to focus on other issues over the next fiscal year” rather than going after the ACA again.
That said, the individual market still faces problems. Trump ended cost-sharing reduction (CSR) payments to insurers last year. The CSR payments help insurers contain lower-income Americans’ out-of-pocket costs. Payers hope that Congress will approve CSR payments through at least 2019 this month, but that’s part of a long list of tasks for Capitol Hill, including reauthorizing the Children’s Health Insurance Program.
A.M. Best said losing CSR payments won’t affect payers much this year, since most payers received a sizeable portion of the payment for the year. Plus, many state regulators allowed plans "to adjust premium rates prior to the open enrollment to avoid a potential negative financial impact,” according to report.