A.M. Best maintains negative outlook for health insurers due to impact of health care reform
Posted on August 18th, 2010
A.M. Best Co. is maintaining a negative outlook for health insurance companies. The driving factors are the struggles to grow revenue and the near-term impact from the implementation of health care reform. In 2009, the seasonally adjusted unemployment rate rose from 7.6% in January to a high of 10.2% in October and ended the year at 10.0%. The rising unemployment rate resulted in the loss of members due to layoffs/attrition (known as in-group disenrollment). During the first six months of 2010, the unemployment rate has remained in the high 9% range, and while this is still high compared to recent years, the in-group disenrollment has started to lessen. However, employers have not begun to increase their number of employees. The lack of enrollment gains, combined with pricing pressures in the commercial sector, could offset premium rate increases and impact revenue growth. Furthermore, the number of individuals eligible for Medicaid continues to rise due to the recession. Many states are challenged to balance the budget, and finding additional funds to pay for the additional Medicaid members is difficult. This may lead to more challenging rate negotiations with the states at renewal and/or changes in eligibility or benefits provided, where allowed.
With the phased-in implementation of health care reform beginning in 2010 and full implementation in 2014, A.M. Best does expect to see some changes. One of the most significant changes in the near term is the minimum medical loss ratio requirement for individual, small and large group segments beginning in 2011. Although the definition of what is included in the medical loss ratio is not yet available, A.M. Best does expect to see margin compression as companies comply. Additionally, A.M. Best anticipates health insurers will try to lower administrative expenses to help offset the increase in the medical loss ratio.
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