Insurers' Rating Outlooks Take Tumble Because of Health Reform
Health insurance companies are concerned that healthcare reform could damage their business, but the mere talk of healthcare reform is also negatively affecting health insurers.
In light of potential healthcare reform proposals, Fitch Ratings recently revised the Rating Outlook of six health insurers from Stable to Negative while maintaining six other insurers as Negative.
Fitch Ratings said the Negative Outlook "reflects the strong potential for healthcare reform and its possible adverse implications on each company's financial strength and creditworthiness. Though no bill has been finalized yet, and multiple policy schemes are possible, most of the alternatives being debated could weaken health insurers' financial profiles in Fitch's view. The Negative Outlook also reflects the high levels of uncertainty that currently exist with respect to the ability of individual insurers to adapt to a likely changing competitive and pricing environment resulting from reform."
The six health insurer groups who dropped from Stable to Negative are:
- Aetna, Inc.
- Blue Cross Blue Shield of Florida
- Blue Cross Blue Shield of Idaho Health Service, Inc.
- Cigna Corporation
- Coventry Health Care, Inc.
- Health Care Service Corporation
The six insurers who remained at Negative are:
- Health Insurance Plan of Greater New York
- Health Net, Inc.
- Healthmarkets, Inc.
- Humana, Inc.
- UnitedHealth Group, Inc.
- WellPoint Inc.
Fitch plans to address the ratings again after a healthcare reform package is finalized.
"Depending on the specifics of any final legislation, the net impact of healthcare reform could vary widely, falling anywhere from neutral to severely unfavorable for the ratings," wrote Fitch.
The "most detrimental scenario" for health insurers would be a public plan option, especially one that mirrors Medicare reimbursement rates. This would lead to "severely" hurting the "outlook for health insurers' profit margins. Depending on the ultimate structure, the public plan could also lead to substantial enrollment loss for private insurers," wrote Fitch.
Two other potential healthcare reform trouble spots for private insurers are adverse selection and health insurance price restrictions.
"A combination of any or all of these developments could incrementally weaken the sector's earnings and cash flow generation capabilities," wrote Fitch.
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