Moody's downgrades outlook for health insurers

Moody's, long skeptical about the Affordable Care Act's financial impact on the hospital sector, has now downgraded the outlook for health insurers.

Citing uncertainty over who is actually enrolling for coverage in the state health insurance exchanges--as well as an ever-shifting regulatory environment--Moody's downgraded the insurance sector from stable to negative.

"While we've had industry risks from regulatory changes on our radar for a while, the ongoing unstable and evolving environment is a key factor for our outlook change," Stephen Zaharuk, senior vice president, said in a statement. "The past few months have seen new regulations and announcements that impose operational changes well after product and pricing decisions were finalized."

However, some health plans are bullish about continued enrollment via the ACA. For example, WellPoint Chief Executive Officer Joseph Swedish recently said at an investor's conference that he expected a surge in enrollment before the end of the open enrollment period at the end of March.

Industry watchers expect as many as 7 million Americans to purchase coverage through the exchanges, with millions more projected to enroll in government coverage via Medicaid expansion.

Although Medicaid expansion will help boost revenue streams to hospitals, the ratings agency noted that payers participating in Medicaid managed care can't pass on additional costs to enrollees.

As a result, Moody's forecasts net margins for health insurers of 2 percent in 2014, down from the 3 percent margins that prevailed in 2013. It also expects overall membership growth to shrink from 3 percent last year to 1 percent in 2014.

However, Moody's observed that "the impact of these factors will vary by market segment and geography. Moody's view continues to be that the larger and more diversified insurers will be better positioned, both financially and strategically, to meet the challenges facing the sector."

To learn more:
- read the Moody's statement
- check out the Moody's report (purchase required)