The rising healthcare costs in new private and public insurance exchanges are dramatically changing the health insurance landscape, according to (video) A.M. Best analysts.
They point to a dramatic increase in national healthcare expenditures from 15 percent of the gross domestic product (GDP) in 2005 to 17 percent -18 percent this past year. By 2020, they expect it to reach between 19 percent and 20 percent.
A.M. Best analysts Joseph Zazzera and Sally Rosen also highlight the increased interest in private exchanges, as opposed to federal and state exchanges, which allow employers to offer more plan and carrier options to their employees.
To meet that growing interest, insurers have been advertising and campaigning more directly to employers, rather than individuals. For example, Aetna hired renowned advertising agents to build brand equity and reach healthy adults through a prime time TV ad campaign, FierceHealthPayer previously reported.
Although insurers have been preparing for public exchanges for quite some time, the unknown risk and utilization of new exchange participants and the medical-loss ration requirement will put pressure on earnings, Rosen notes. In fact, insurers have been struggling to set 2015 prices for exchange plans because some of the most essential aspects that factor into their decisions remain unknown.
Despite the unknowns, A.M. Best still holds a positive outlook for health insurers. "We do expect earnings to remain favorable in 2014 and 2015, but lower," Rosen says. "The insurers have become more diversified in multiple lines of business, not just commercial ... and many nonprofit companies have been building capital for many years in preparation for the exchanges in 2014."
Meanwhile, in January, Moody's Investors Service downgraded the outlook for health insurers from stable to negative, thanks in part to an ever-shifting regulatory environment.
- here's the A.M Best video