The outlook for insurers is stable heading into 2022, particularly as the ongoing impacts of COVID-19 recede, according to a new report from Moody's Investors Service.
The pandemic's lingering effects depressed earnings in 2021 amid high costs for testing and treatment as well as state efforts to recover funds banked by insurers during care deferrals in 2020, Moody's said. For 2022, however, the analysts expect lower costs related to COVID and higher Medicare payments.
That said, plenty of questions still remain, particularly with the emergence of the new—and highly infectious—omicron variant.
"It is too early to declare victory," the analysts wrote in the report. "Potential threats could emerge from new variants and the medical impact of those suffering with long-COVID is not well understood."
Other trends to watch that are noted in the report include the Build Back Better bill, which is working its way through Congress. The Moody's analysts said the proposals currently included in the bill are credit positive for insurers.
The bill includes expanded subsidies in the individual market and potentially allowing Medicare to negotiate drug prices. The analysts said these changes could bolster the market and also potentially reach people who are unable to access expanded Medicaid.
"The proposals could increase enrollment and improve medication adherence, both credit positive," they wrote.
The report also flags the individual market as a likely area of growth in the coming year. Enrollment significantly expanded in 2021 thanks to enhanced subsidies and a lengthy special enrollment period, but higher medical costs and greater competition drove down potential gains.
Moody's analysts expect that in 2022 those impacts will likely even out.
A potential tailwind to watch in the coming year, according to the report, is rising drug costs. Traditional Medicare is the largest source of these costs, the analysts said, as it has fewer avenues than commercial insurers to manage these expenses.
Medicare is also a key market for specialty drugs, which have increasingly high price tags. Moody's said the average specialty drug price hit $84,442 in 2020 and is growing more than three times faster than the price of other goods and services.
"Specialty drugs are in many cases miracles that extend life and improve life," the analysts said. "Controlling these costs is a societal issue, not primarily an insurance issue."