NEW YORK - There will be downward pressure on the ratings of U.S. healthcare insurers as a result of political and economic uncertainties, according to a new report by Moody's Investors Service.
However, the rating agency believes that the larger and more diversified insurers are better positioned, both financially and strategically, to meet these challenges.
Moody's primary consideration is the ultimate impact of the nation's healthcare reform policies on the insurers -- the direction of which is not yet clear. Some of the provisions being considered, even if enacted into law, would not be implemented for several years; however, the rating agency believes that there could be significant strategic and operational challenges in the near term if insurers choose to abandon sectors they deem to be ultimately unprofitable.
Moody's Senior Vice President Steve Zaharuk commented: "Proposed provisions such as the 'public option' and reductions in Medicare Advantage reimbursements are a credit concern and may ultimately have a negative effect on insurers' ratings." "Until the final healthcare reform bill is passed," he adds, "our ratings analysis for any given company will continue to incorporate the potential impact of healthcare reform on its credit profile."
The report notes that healthcare insurers have been conservative in the management of investment portfolios and liquidity during the financial crisis. However, the economic downturn has led to membership declines and to an unexpected rise in medical costs. "As the economy worsens," Zaharuk states, "fewer jobs and more layoffs equal reduced membership; at the same time, current employees are fully utilizing their benefits in anticipation of layoffs. Both of these trends are a concern for health insurers' credit ratings," notes the analyst.
Finally, Moody's emphasizes that it will consider the following company specifics when evaluating credit strength in this new environment: business profile, including its geographic and product diversity; financial profile, including profitability, capital adequacy, and financial flexibility; and management's ability to reposition the company's operations in order to adapt and implement new strategies.
