Health insurer 2019 outlook stabilized by cost containment and membership growth, Moody’s says

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A stable economy will offer a modest membership lift in the commercial market, analysts said. (Getty/monsitj)

Despite regulatory rumblings, murmurs of outside disruptors and public pressure to reduce healthcare costs, health insurer profitability is expected to remain stable next year, according to one of the country’s largest credit rating firms.

Contained medical costs, better performance on the Affordable Care Act exchange, modest membership growth due to a stable economy and new opportunities in Medicare Advantage all serve as tailwinds for insurers over the next year, according to a report by Moody’s Investor Services.

But insurers could also face more financial pressure because of an aging population. In the long-term, a surge in “relatively expensive specialty drugs” expected to hit the market could drive up drug expenditures, analysts said.

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To combat that trend, payers are leaning on vertical integration with pharmacy benefit managers and physicians to provide additional cost control levers. The CVS-Aetna and Cigna-Express Scripts deals will spend much of next year on integration, and “it will take time to determine if the benefits outweigh the costs of these transactions,” analysts wrote.

“In the case of the two large PBM deals, there are also significant risks, namely very high leverage along with integration risk,” the Moody’s report said. “However, if successful, the rewards could include taking another chunk out of medical costs.”

If 2018 was the year of vertical megamergers, 2019 is likely to bring much smaller deals to bolster existing capabilities. That’s primarily due to that fact that acquisitions on the scope of CVS-Aetna and Cigna-Express Scripts are no longer available.

And while insurers will continue to target Medicare Advantage growth, smaller companies face a looming risk that government reimbursement won’t cover the health benefits offered to members. That fluctuation is easily managed by large insurers like UnitedHealth, but Humana, in particular, would be more vulnerable to reimbursement reductions, according to analysts.

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Public support for Medicaid expansion—included recently passed voter referendums in Utah, Nebraska and Idaho—will add 300,000 new enrollees to the program. Other red states could follow suit with new Democratic governors in place. That could be beneficial for Medicaid-focused insurers like WellCare, Molina and Centene.

A divided Congress is also a win for insurers since it likely marks two years of relative predictability. Moody’s analysts expect the Trump administration continue deregulating the ACA marketplace, which will give plans “more flexibility in the pricing and design of plans and potentially attracting currently uninsured individuals.”

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