The credit outlook for health insurance plans is stable in 2020, although legal and political risks could threaten that stability, according to a new analysis from Moody’s Investors Service.
Moody’s projects health insurers will continue to see strong earnings growth amid stable economic and demographic trends, with financial growth likely in the mid- to high-single digits. That’s slightly below 2019, with some headwinds coming from the potential reinstatement of the Affordable Care Act’s (ACA's) health insurance tax and from the cost of an aging population.
Moody’s also estimates that medical costs will continue to increase, though the industry has made strides in mitigating those expenses. Short-term trends, such as growth in Medicare Advantage enrollment and the growing number of pricey specialty drugs, could negate some of those gains.
The key challenge for insurers in 2020 will be the continuing political discussion around single-payer healthcare, Moody’s said.
“Health insurance remains an important political issue, and among the proposals under discussion is a single-payer plan that would be an existential threat to the industry,” said Dean Ungar, Moody’s vice president and one of the report’s authors, in a statement.
“Other proposals including a limited public option that would be open to participants in the individual market, or a more expansive public option, still would be credit negative, but likely manageable,” Ungar said.
Another potential complication: The pending legal effort to strike down the ACA. A year ago, a federal Texas judge ruled that the repeal of the individual mandate rendered the ACA unconstitutional. A federal appeals court heard oral arguments on the case over the summer, and its ruling is pending.
If the law were invalidated wholesale, it would also have negative credit implications for insurers, Moody’s said, especially those with substantial investment in the ACA exchange or in managed care in states that expanded Medicaid.
“Assuming that Congress does not intervene, this would be disruptive to the health insurance market and especially to the large players in the individual market and/or Medicaid, such as Centene Corporation, Molina Healthcare, Inc and Health Care Service Corporation,” the analysts said.