The financial outlook for 2017 isn’t shaping up well for payers, according to Fitch Ratings.
Citing worries about potential profitability in Affordable Care Act exchanges and leverage concerns, Fitch says in a new report that both the ratings and sector outlook for U.S. insurance companies is likely to be negative next year. Fitch notes that it expects to see more ratings downgrades than upgrades for insurers over the next year or two.
Yet one potential factor that improve credit outlook for payers is President-elect Donald Trump and a Republican Congress’ plans to repeal and replace the ACA, according to the report. However, though changes to the ACA would likely be positive for payers’ credit rankings, there is a lot of uncertainty as to watch exactly would replace the healthcare law and how that could play into future credit analyses.
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The incoming Trump administration has highlighted several policy ideas to replace the ACA, including offering tax incentives to help consumers purchase health insurance, establishing high-risk insurance pools and changing the way Medicaid funds are distributed. Taken on their own, these proposals come with individual positives and negatives, according to Fitch.
“There are likely to be individual winners and losers in such an environment depending on insurers' specific capabilities and circumstances," Mark Rouck, senior director of Fitch Ratings, said in a post announcing the report’s release.
Regardless of what would replace it, a repeal of the ACA would promote more varied product offerings, reduce fees across the insurance sector and boost underwriting flexibility for payers, according to the report. Payers that currently participate in ACA exchanges are most likely to experience the benefits of these changes.
Another element to consider, according to Fitch, is the status of the mergers between Aetna and Humana and Anthem and Cigna. If these mergers are challenged successfully by the Department of Justice, Aetna and Anthem—as the acquiring parties—would forgo the financing needed to make such a large acquisition, which would remove negative watches for both companies. Improving the outlook for those two large insurers would likely have a positive impact on the insurance sector as a whole, according to the report.