Insurers can expect a stable credit outlook and low double-digit earnings growth this year after a strong first quarter, according to a forecast from Moody's Investors Service.
The analysts' report finds that the average growth in earnings before interest, taxes, depreciation and amortization (EBITDA) was 3.7% in the first quarter among seven major national payers. When excluding investment income and realized gains and losses, however, EBITDA was up 10.3% on average.
What was driving this performance? Strong enrollment growth in Medicare Advantage and Medicaid as well as improvements in the commercial book, analysts said. Enrollment gains were partially offset by higher costs, largely due to the spread of the omicron COVID-19 variant alongside growing non-COVID utilization.
"For 2022, we continue to forecast earnings growth to pick up based on lower COVID costs, better performance in the individual market and better commercial trends, barring a sharp economic reversal and as long as growth continues in Medicare Advantage," the analysts said.
Moody's said it did not anticipate the potential "disruption" that rising inflation and ongoing conflict in Ukraine could cause, but it is maintaining a stable outlook for now.
The report also highlights key trends to watch in the second half of the year that could have a material impact on the credit outlook for health plans. For one, Medicaid enrollment will be significantly impacted by the end of the public health emergency, which could come as early as July.
Enrollment in Medicaid has increased 23% under the pandemic, a notable boon for insurers that operate state managed care organizations. An estimated 10% of current Medicaid enrollees will no longer qualify for coverage when the emergency ends, Moody's said.
"When we published our outlook in December, we predicted that Medicaid eligibility redeterminations would already be beginning, but the PHE will now remain in effect until at least July, which will reduce negative effects from a likely decline in Medicaid enrollment in 2022," the analysts wrote.
In a similar vein, enhanced subsidies for plans on the Affordable Care Act's exchanges will run out at the end of this year. These subsidies drove huge growth in exchange enrollment over the past year, and those gains are likely to reverse if the subsidies run out.
Earlier this year, the federal government required insurers to cover the costs for at-home COVID-19 testing. There were concerns this could drive up health spending, but that has not proven to be the case so far, according to the report, which does ease a potential tailwind.