While payers so far have shrugged off many of the economic challenges that have plagued their provider counterparts, the economic downturn could impact them eventually, according to a new report.
Analysts at Moody's Investor Service said ongoing inflation and slowing economic growth are the most likely challenges to impact the insurance sector, as it's more insulated from other ongoing issues in healthcare such as supply chain problems, labor shortages and high interest rates.
Health plans that also own providers, however, could see their labor costs increase if shortages continue, according to the analysis.
"Inflation could also pose problems for the health insurance industry, though less so than for the overall economy. Health insurers have flexibility because of the short-term nature of health insurance policies, which are renewed annually and can incorporate pricing pressure," the Moody's researchers wrote.
An economic downturn could ding payers in several ways, according to the report. For one, should economic changes drive job losses, that would negatively impact enrollment in employer-sponsored coverage, the analysts said. During the 2008 recession, the fear of layoffs and job cuts drove many people to seek care while they were insured, driving up utilization and the associated costs.
Should the economy similarly decline, an increase in utilization like that in 2008 would be likely, the analysts said.
Slower economic growth would also have a negative impact on investments made by insurers, according to the report, which could make it harder for those seeking to raise capital to do so.
That said, health plans did weather the 2008 financial crisis better than the economy overall, Moody's noted. In 2008, insurer earnings declined by 27% compared to a 77% decrease for the overall S&P 500.
And insurers are better positioned now for an economic downturn that impacts the commercial market in particular, according to the report. In 2008, commercial coverage made up a much larger segment of insurers' membership; at UnitedHealthcare, for instance, commercial plans made up 80% of its membership in 2008. By comparison, in the second quarter of this year, commercial coverage accounted for 50% of its membership.
In addition, health insurance companies are more than just insurers now, and those diverse business lines can help protect against more significant impact from the insurance business.
"The industry—and especially the insurers that we rate—are more diversified than they were in 2008, with many owning non-insurance assets, such as pharmacy and health information services, including UnitedHealth, Cigna Corporation, Humana and Elevance Health, Inc., which would further insulate them from enrollment declines."