Moody's: Insurers should expect slower earnings growth this year

Insurers will face some credit pressures over the course of this year, but the outlook for the industry is overall stable, according to a new analysis from Moody's Investors Service.

The report found that earnings before interest, taxes, depreciation and amortization growth for publicly traded insurers was 12% for the full year 2022. Their financial performance got a boost from suspended Medicaid redeterminations, reduced COVID-19 costs and strong growth on the Affordable Care Act's (ACA's) exchanges.

The analysts expect that earnings growth this year will slow compared to 2022 as the redeterminations resume but that Medicare Advantage (MA) will remain a bright spot.

"Our 2023 health insurance outlook is stable, despite a likely decline in membership for Medicaid with the onset of eligibility redeterminations, and possible slower growth in commercial if economic conditions remain soft," the Moody's analysts wrote. "We expect continued growth in Medicare Advantage and incrementally better performance in the individual market on additional changes in pricing and product design. Overall, we expect mid-to-high single-digit growth in 2023 versus 12% in 2022."

The analysis also looks at the individual credit outlook for major national insurers, with UnitedHealth Group earning the highest outlook at "positive."

For UHG, its health plan arm, UnitedHealthcare, saw a 9.5% increase in MA to a market-leading 7.1 million, and its Optum subsidiary was bolstered by significant growth at its provider business, Optum Health. Optum Health accounts for 43% of Optum's overall earnings, according to the analysis.

Operating earnings at UnitedHealthcare grew 20% year over year, and operating earnings at Optum grew by 17%, according to the report.

CVS Health-Aetna, Elevance Health, Cigna, Humana and Molina Healthcare were all given "stable" ratings.

Centene Corporation, the final insurer included in the analysis, is staring down a potentially mixed 2023, according to the Moody's analysts. As a positive, Centene is seeing a boost from the record numbers of sign-ups on the ACA exchanges, and expects that to drive $3 billion in additional premium revenue this year.

However, the beginning of Medicaid redeterminations in April will be a significant drag on the insurer, according to the report. It will drive down revenues by $9 billion through 2024.

The analysts also note that the recently finalized risk adjustment data validation rule, which made significant changes to audit calculations in MA, will be a key trend to watch as the year goes on. In addition, MA payment rates for 2024 are lower than in previous years, to the point that insurers have called them a cut.