The outlook for the U.S. health insurance and managed care sectors remains stable, Fitch Ratings announced.
Over the next 12 to 24 months, Fitch expects the sector's earnings and interest coverage to remain strong and balance sheet and liquidity metrics to approximate current levels. As a result, most health insurance and managed care companies' ratings are likely to be affirmed over that time.
Fitch expects the sector to continue to generate strong absolute earnings and EBITDA-based interest coverage. Margins are likely to remain solid but decline somewhat as insurers are challenged to wring costs out of the health care system given pressure on premium rates and low interest rates.
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The ongoing implementation of the Patient Protection and Affordable Act is the key issue currently impacting the sector, Fitch says, as PPACA's full implementation, at least in its current form, remains uncertain, due to legal issues that may be settled after the U.S. Supreme Court renders its decision in 2012.
Fitch's view is that the most credit-negative outcome would be a Supreme Court decision that increases the risk of adverse selection by eliminating the requirement that individuals purchase insurance without also eliminating mandated coverage provisions.
If such a decision is not accompanied by subsequent legislative revisions to mandated coverage provisions and is expected to lead to material declines in earnings and interest coverage, Fitch would consider revising the outlook to negative.
Notwithstanding the current debate PPACA, Fitch says "the sector will continually be subject to political and legislative concerns that effectively make a move to a positive outlook unlikely."
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