Health insurers’ earnings are likely to grow at a slower pace this year compared to 2019 as the maligned health insurance tax rears its ugly head and political pressures increase, a new report shows.
Moody’s Investors Service released its look at trends to watch in 2020 and weighed the potential credit implications across multiple sectors of the healthcare industry, including payers, providers and pharmaceutical companies.
Payers are set to continue their financial growth by mid- to high-single digits this year, the analysts said, but will be hit with the Affordable Care Act’s unpopular health insurance fee in 2020 for what is set to be its swan song.
Continued rhetoric around single-payer or a public option poses a risk, they said.
“It’s not clear that a role would be preserved for the insurance companies and that obviously would be a very, very bad thing,” Dean Ungar, vice president and senior analyst at Moody’s, told FierceHealthcare.
Insurers will also be confronted with significant cost pressures, according to the analysis. For one, the Medicare Advantage population continues to boom as more people age into the program.
In addition, costly specialty drugs still pose a major challenge; despite accounting for a small amount of prescriptions, they add up to nearly half of all drug spending. Insurers that own or have merged with a large pharmacy benefit manager, such as UnitedHealth Group, Aetna and Cigna, are best positioned to manage these costs, according to the report.
The industry’s continued, albeit slow, adoption of value-based care models continues to be the key, according to Moody’s. Ungar said this transition is a “battle” against factors like an aging population, but there’s progress.
“It’s a long process, a slow process,” he said. “With the increasing prevalence of value-based care contracts, we are seeing more progress made toward lower costs.”
Credit trends for providers to track
For both hospitals and physician firms, one issue is central, according to the report: surprise medical billing. The path lawmakers choose to take on that issue has major implications, particularly for emergency care.
Should Congress decide to adopt a rate-setting approach, physician staffing organizations, especially those that provide doctors for emergency departments, will feel the sting. However, the analysts note that a final bill on the issue will likely take a mixed approach, incorporating both rate-setting and arbitration.
“We expect legislative or regulatory changes that curb out-of-network charges would accelerate consolidation and M&A,” the analysts wrote. “Substantive changes to laws around out-of-network billing would make it more attractive for smaller group providers of anesthesia, emergency and other services to become part of a larger, in-network group.”
Hospitals also need to monitor the continued expansion of massive retail and tech companies into their legacy territory, according to the report. Health clinics like those opened in Georgia by Walmart pose a notable financial threat if they continue to quickly grow.
“Retail giants have considerable distribution networks and strong access to capital, even when compared to some of the largest health systems in the nation,” the analysts said.