Most of the nation’s largest insurers saw profits climb in the third quarter as a possible recession next year threatens to take a bite out of enrollment and potentially the bottom line.
Still, all major insurers expect a rosier end to 2022 than previously predicted and raised their full-year earnings targets. On the other hand, profits fell for large hospital operators faced with pricier labor and lower volumes.
Talk of a recession is building as inflation reached a new high in September, even as federal regulators have repeatedly hiked interest rates to temper the possibility. Economists told The Wall Street Journal in October a recession within the next year is likely, putting the probability at 63%, on average, marking the first time the probability measure has climbed above 50% since July 2020, WSJ reported.
Profits continue to climb for most of the largest payers
A recession, especially one with significant job losses, is likely to nick commercial enrollment as health coverage is tightly linked to employment in the U.S.
Insurers with a larger share of employer clients, who extend health coverage to workers, are more exposed to the effects of any recession that spurs job losses, analysts said.
Cigna is the payer most exposed to the fallout from a downturn in the economy, Jefferies analysts said in a recent research note. About 35% of Cigna’s earnings come from its commercial market, according to Jefferies.
Every major insurer reported an uptick in enrollment
Cigna’s commercial membership represents 82% of the insurer’s total enrollment. Cigna covered a total of about 18 million people at the end of the third quarter and roughly 14.8 million are commercial members.
Government programs like Medicaid will help soften enrollment losses elsewhere, analysts said, as Medicaid typically sees enrollment gains during a souring economy.
Over the course of the pandemic, enrollment in Medicaid has swelled, serving as a safety-net for people without job-based coverage.
Some of the nation’s largest insurers, like UnitedHealthcare and Elevance Health, formerly known as Anthem, have a diverse book of business that will help blunt the effects of commercial losses, Dean Ungar, a senior analyst at Moody’s Investors Service, told Healthcare Dive.
Unlike Cigna, Elevance has a large Medicaid business, Jefferies analysts said, while UnitedHealthcare is the largest Medicare Advantage player.
Companies that “have an enrollment mix that is more diversified into Medicare Advantage and Medicaid are likely to see a softened impact,” Bradley Ellis, senior director of North American insurance ratings at Fitch Ratings, told Healthcare Dive.
Plus, Cigna and Aetna’s large pharmacy benefit management businesses will help mitigate potential enrollment losses, Ellis said.
Still, Elevance CEO Gail Boudreaux said executives are bracing for an economic downturn, but tried to assure investors on a third-quarter earnings call that the company is a “much more resilient business” than it was in 2008 during the Great Recession.
Currently, 25% of Elevance’s premiums are derived from its commercial business compared with 70% in 2008, Boudreaux said.
A recession would be somewhat of a positive for Centene or Molina, Ungar said, “because [they] have mostly Medicaid and Medicaid tends to increase in a recession.”
However, next year will likely bring the end of the COVID-19 public health emergency, and states will once again be able to kick people off Medicaid who no longer qualify. The PHE has barred states from doing so.
“In general, during a recession, more folks rely on the health safety net and managed care grows. That may be an input as we see what the overall impact of redeterminations is,” Centene CEO Sarah London said during the company’s third-quarter earnings call.
About 20 million people joined Medicaid during the pandemic, Ungar said.
“That’s huge, a huge amount of people,” Ungar said. “Who knows how many people will come off Medicaid and where will they go, so there’s going to be some turmoil there.”
Enrollment isn’t the only factor weighing on profitability, Cynthia Cox, vice president at Kaiser Family Foundation, told Healthcare Dive.
As witnessed during the pandemic, insurer profits can rise when people forgo healthcare services.
“People may use less healthcare during a recession out of concern about healthcare costs,” Cox said.