Sunny forecast for health insurance industry in 2019
The overall strong economy is boosting the insurance industry, as increasing numbers of employed Americans means more paying into employer-sponsored plans.
Moody’s Investor Service has issued a relatively glowing report on the U.S. health insurance market, predicting stability and earnings growth for insurers in 2019. Despite continued public anxiety over health insurance reforms, Moody’s analysts noted that currently, the Affordable Care Act (ACA) is working well for insurers in the US.
“Our stable outlook for US health insurers is based on our expectations of solid earnings growth, reflecting disciplined medical management, stable medical cost trends, and modest membership growth,” the report said. “The industry has adjusted to the ACA, and ACA plans have been profitable overall in 2018, which we expect to continue.”
Insurers benefit from booming economy
The report noted that the overall strong economy is boosting the insurance industry, because increasing numbers of employed Americans result in more members paying into employer-sponsored plans. At the same time, analysts said, medical costs have been contained, so insurers can expect seeing growing income and predictable expenses in the near future.
Related: 4 reasons employer-sponsored health insurance won’t go away
“Economic growth accelerated in 2018, with solid job growth and a record level of job openings,” the report said. “Moody’s Investors Service forecasts US real GDP growth in 2018 of 2.9 percent, which is among the strongest over the past decade. This, in the near term, should support and perhaps modestly improve organic medical enrollee expansion in the group commercial segment—the industry’s largest business, representing roughly 55 percent of medical membership in the US.”
However, the report added, it is unclear if this growth is sustainable in the long term. The Moody’s analysts forecast lower GDP growth in 2019, averaging just under 2 percent. And the report said medical inflation is expected to continue to outpace GDP growth.
Medical costs growing, but under control—for now
The report said that as medical cost trends continue to rise, the health sector has enacted cost-containment strategies that have blunted the impact of cost increases. Insurers have seen increased earnings in 2018 due to these strategies, the report said.
“This reflects continued growth in medical costs overall, featuring much better performance in the ACA exchange businesses, including favorable prior period development, and cost-cutting efforts at a number of companies. We expect solid earnings to continue in 2019 with base earnings growing in the mid-to-upper single digits,” the report said.
However, the moderating cost trends might change due to prescription drug prices. Moody’s said the industry is expecting a surge in the introduction of relatively expensive specialty drug products over the next few years. “The anticipated increase, reflecting an unusually strong drug pipeline and a large number of recent FDA approvals, will likely outpace the number of brand-name drugs going off-patent, which could drive up drug expenditures and push the medical cost trend higher,” the report said.
A changing health care system
Overall, the health care system is making changes that encourage a more value-based approach—in other words, paying for the quality, rather than the quantity of care. The report said that this approach, plus trends like mergers and acquisitions, has brought more efficiency to health care delivery.
The report also expects growth of Medicare Advantage plans, which has both benefits and risk for insurers. And Medicaid plans are expected to expand in several states, due in part to the recent midterm elections, which increased the number of Democratic governors. “Further Medicaid expansion is a credit positive for the industry, although it is unclear which companies would benefit,” the report said.
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