Publicly traded health insurers' earnings up 3.7% in Q1
Excluding investment income and realized gains and losses, earnings for the group actually were up by 10.3%.
Earnings growth for the seven publicly traded health insurers increased by 3.7% in the first quarter of 2022, Moody’s Investors Service reported. Excluding investment income and realized gains and losses, which have been weakened by market conditions, earnings for the group actually were up by 10.3%.
“Enrollment growth was strong in Medicaid and Medicare Advantage, along with better results in commercial,” the report said. ”Enrollment growth was partly offset by increased medical costs, reflecting Omicron and increasing non-COVID utilization. We continue to forecast low double-digit EBITDA growth based on lower COVID costs and better performance in the individual market, which will contribute to a stable credit profile and improved leverage.”
Related: Infographic: Breaking down health insurers’ 2021 performance
Among other highlights of the report:
Medicaid enrollment will decline after the public health emergency expires. Since the pandemic began and an emergency was declared, states have suspended Medicaid eligibility reviews. As a result, Medicaid enrollment has increased by 23%, or 16.3 million, to 87 million since the pandemic, boosting earnings for Medicaid insurers. It is now estimated that approximately 10% of current enrollees will no longer qualify when the emergency expires, possibly in July, and eligibility reviews resume.
At-home testing costs are lower than expected. In 2022, health insurers were required to cover at-home testing costs. There were concerns that this could increase medical costs, bug based on discussions with health insurers, that has not been the case. The cost of the at-home test is significantly lower than in-office testing, and to date, the frequency has been lower than the companies expected. It has not been a driver of medical costs.
Individual market subsidies still are set to expire at year-end. Pandemic-related individual market subsidy increases are set to expire at year-end 2022. These increased subsidies helped push individual market enrollment to a record 14.5 million for 2022, a 2.5 million-person increase from the previous year. Without new legislation to extend these subsidies, Moody’s expects much of the enrollment gains to reverse.
Greater scrutiny of mergers and acquisitions by the Department of Justice could slow consolidation. The Biden administration has called for increased scrutiny of corporate consolidation in several industries, including health insurance. Along these lines, in February 2022, the Department of Justice sued to block UnitedHealth’s acquisition of Change Healthcare Holding LLC. Consolidation has been a key strategy to expand capabilities and better control costs. Consolidation also can increase leverage, which can be credit negative.
“For 2022, we continue to forecast earnings growth to pick up based on lower COVID costs, better performance in the individual market and better commercial trends, barring a sharp economic reversal and as long as growth continues in Medicare Advantage,” the report concluded. “When we published our outlook in December, we predicted that Medicaid eligibility redeterminations would already be beginning, but the public health emergency will now remain in effect until at least July, which will reduce negative effects from a likely decline in Medicaid enrollment in 2022. Although we did not anticipate the current level of inflation or the potential disruption from the Russian invasion of Ukraine, we have not changed our 2022 outlook.”
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