Moody's: Insurers' EBITDA up 87% year over year in Q2

Insurers posted "unusually strong" financial performance in the second quarter, according to a new analysis from Moody's Investors Service.

Payers' earnings before interest, taxes, depreciation and amortization (EBITDA) was up 87% year over year, largely due to significant declines in care utilization, the analysts said. However, while the firm maintains the stable outlook for the industry, there are several trends threatening to shake things up in the second half of the year.

For one, deferred services are returning and volumes are stabilizing. Cigna, for example, said during its second-quarter earnings call that it saw service use at "near normal" levels in June and expected the same for July.

"Medical costs are likely to run higher in H2 2020 as deferred procedures return, coronavirus treatment costs continue and companies absorb costs from assistance to customers and providers," Moody's analysts wrote.

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Moody's doesn't expect the summer's spike in COVID-19 cases in certain parts of the country to have a significant negative impact on third-quarter financials.

Political and legal uncertainty is a major challenge in the latter half of the year, according to the analysis. Looming in November are both the presidential election and opening arguments in the Supreme Court case that hold the fate of the Affordable Care Act (ACA) in the balance.

Should former Vice President Joe Biden secure the presidency, it will bring a new approach to health reform to the White House focused on a potential public option and expanded subsidies for the ACA's exchanges.

President Donald Trump's health plan, meanwhile, is scant on details, Moody's said. A divided legislature will stymie change efforts on either side.

If SCOTUS struck down the ACA, the ripple effects in the healthcare industry would be enormous, according to the analysis, and likely be credit negative for payers.

"An adverse ruling, which we do not expect, would eliminate coverage for approximately 20 million people, which would be credit negative for insurers with significant Medicaid expansion and Individual market exposure," the analysts said. "How the law would be replaced depends on who is President and who controls Congress."