Moody's: Insurers like Centene, Molina better positioned to weather economic downturn than in 2008

Computer-generated neon line graph glowing on screen
Moody's said the industry has undergone major changes in recent years that would protect it against volatility. (Getty Images/maciek905)

When the major economic recession hit back in 2008, the top eight publicly traded insurers saw their earnings plummet nearly 40% before they began to level off again.

In the event of another economic downturn like that, health insurers would be more resilient against those economic headwinds, according to the latest Healthcare Quarterly report from Moody's Investors Service, which looked at the potential fallout of an economic downturn on various healthcare sectors. 

The biggest reason: changes that occurred as a result of the Affordable Care Act, such as the creation of health insurance exchanges and the expansion of Medicaid in many states. That is because it allows individuals who lose their jobs to obtain subsidized coverage on those exchanges or qualify for Medicaid. Companies such as Centene Corporation and Molina Healthcare, which have a significant presence on the exchanges and a focus on Medicaid, are particularly "well-positioned," the report said. 

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Beyond the ACA, Moody's said the industry has also undergone major changes in recent years that would protect it against that volatility.

RELATED: Moody's: Rising U.S. healthcare costs could hit other sectors of the economy

However, in some cases, such as with the two largest insurers, Cigna and Aetna, companies have weaker financial flexibility and lower ratings as a result of acquisitions. (Cigna completed a $54 billion acquisition of Express Scripts in December, while CVS acquired Aetna for $70 billion in November.) 

"An economic downturn could complicate their plans for implementing new strategies and paying down debt," the report said.

Here's a look at what else the report had to say about other sectors of the healthcare industry: 

  • Hospitals: Health systems are already somewhat "recession-resistant" due to their medical necessity, the report points out.

However, adjusted admissions—which is a measurement of patient volumes—as well as the hospitals' payer mix could show signs of weakening in a downturn. (For instance, an uptick in uninsured or self-pay patients would increase hospitals’ bad debt expense and lower their average revenue per patient.) The authors say reimbursements from Medicaid programs could also dip if states decided to cut programs to balance their budgets.

For-profit hospitals, which are generally more highly financially leveraged, would be more exposed to the negative effects of the economic slowdowns.

"If employers downsize, or even go out of business, many consumers would lose their insurance coverage, making them more likely to defer elective surgeries and nonemergency medical procedures," the report said. "Increasing unemployment would also cause hospitals' payer mix to shift away from commercial insurance toward government programs or self-pay patients."

RELATED: Moody's: It doesn't look like things will get much better for nonprofit hospitals in 2019

However, the authors point out, hospitals' labor structure provides a "natural hedge" because, during rising economic growth, they often face nursing shortages which come with greater scheduling challenges, higher overtime pay and wage inflation, the report said. During slowdowns, the labor market becomes more favorable.

  • Outpatient clinics: Urgent care facilities are generally seen as resilient from economic concerns and would likely benefit since they serve as a lower-cost alternative to hospital emergency rooms.

But other outpatient settings are more vulnerable. For instance, physical therapy clinic business is often tied to employment trends since many workers compensation claims are for job-related injuries suffered by workers in construction or manufacturing.

  • Healthcare staffing: Healthcare staffing companies, which place workers in different specialties at hospitals, ambulatory surgery centers and other healthcare facilities, would see uneven impacts, the report said.

For instance, staffing companies like Medical Solutions Holdings Inc. that specialize in placing executives or patient payment management services would be least affected by a downturn as those needs are unlikely to change in the midst of a bad economy. But those who work in areas such as placing travel nurses, also a role played by Medical Solutions Holdings Inc., would be more likely to see a drop in demand for their services as patient volumes drop. 

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