Moody's: Payers likely to weather the COVID-19 financial storm

Health insurers are likely to remain profitable despite the uncertainty around COVID-19, according to a new analysis. 

Analysts at Moody’s Investors Service maintained the stable outlook for the industry, though it’s unclear at present just how much the virus pandemic could impact health plans financially.  

The analysts said that even in the most severe scenario modeled, where 40% of Americans are infected by the virus, companies would likely break even on EBITDA and have notable capital and liquidity. 

“Although our remote severe scenario would put pressure on earnings and capital, the industry has the wherewithal to manage, which ultimately supports our stable outlook,” the analysts said. 

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To weigh insurers’ financial performance, Moody’s used three models:  

  • A mild scenario, resulting in between 6 million and 8 million infections and about 1 million hospital stays. 

  • A moderate scenario, resulting in between 32 million and 34 million infections and 3 million to 4 million hospital stays 

  • A severe scenario, leading to between 131 million and 133 million and infections and between 11 million and 13 million hospitalizations. 

Under the mild infection level, health insurers could actually fare quite well, as decreased utilization costs for elective surgeries and other care could offset any losses associated with COVID-19, the analysts said. 

Health insurers would also perform strongly in the moderate model, according to Moody’s. 

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Should the pandemic expand beyond the severe scenario used in the model, Moody’s would likely lower insurers’ credit outlook to negative, the analysts said. 

Health plans are also “resilient” in the event of an economic recession, which appears increasingly likely thanks to the pandemic. In the 2008 recession, earnings for publicly traded health insurers declined by 37%. By comparison, earnings declined by 78% for the full swath of companies on the S&P 500, Moody’s said. 

Medicaid-focused insurance companies would be in the strongest position as job losses continue and more people enroll in such coverage, according to the analysis. 

“The normalization of economic activity will ultimately depend on how quickly the virus can be contained,” the analysts said. “If the recovery is slower than expected, the downside is more of an earnings than capital event for the sector.”