Growth in the Medicare Advantage program and innovative technology will help health insurers prosper in 2018.
Despite fierce debate over the future of the Affordable Care Act throughout 2017, Fitch Ratings predicts that the health insurance industry is poised for a stable 2018.
In its recently released “2018 Outlook: U.S. Health Insurance” report, the rating agency upgrades its forecast for American health insurance from negative to stable. It expects that the industry will continue to exhibit financial strength and a solid business model over the next one to two years, even if lawmakers in Congress revive efforts to repeal and replace the ACA.
Before issuing its study, Fitch announced the first-half 2017 results of the 34 Blue Cross and Blue Shield companies it covers, reporting an aggregate underwriting increase of $5.1 billion over the first six months of 2016. At the same time, premium growth outpaced benefit expansion by roughly $2.3 billion, while total administrative costs plunged by $2.8 billion. As debt levels inched downward, strong earnings pushed the companies’ capital and surplus reserves up by 11% compared to the end of 2016.
Fitch attributes the Blues’ strong performance to several factors, including premium rate hikes, tighter enrollment and underwriting standards on ACA exchanges, lower-than-anticipated utilization trends, and the temporary suspension of the ACA's health insurer fee.
Fitch believes that an expected downturn in intra-sector merger activity should also stabilize the industry. It expressed some concern, however, about the pending union of CVS Health Corp. and Aetna, Inc., since Fitch believes that the difficulty of financing the merger would negate any initial advantages resulting from the deal.
As baby boomers continue to age, insurers have increased their presence in the Medicare Advantage program. According to Fitch, enrollment in Medicare Advantage plans has soared at a compound annual rate of around 8% over the past ten years. It cautions, however, that any changes by the federal government to Medicare funding could mean lower reimbursement rates and higher out-of-pocket premiums for enrollees.
Similarly, PricewaterhouseCoopers estimates that Medicare Advantage is on pace to enroll nearly 21 million people next year, a 5% surge from 2017. To succeed in this competitive landscape, PwC urges health insurers to focus on customer experience, stressing that today’s tech-literate seniors react favorably to digital healthcare outreach.
To control costs and achieve better outcomes, health insurers will accelerate their use of technology, writes Eddie Yoon, Portfolio Manager and Research Analyst for Fidelity Investments. Instead of depending on high utilization rates for reimbursement, health insurers will be rewarded based on successful clinical results and the overall effectiveness of their care model. Yoon notes that “healthcare companies are increasingly using tech-enabled services to help meet these new demands.”
Some examples cited by Yoon include mobile apps that provide patients with benefit and clinical information, small health monitoring devices to help diabetics manage their condition, and telemedicine networks connecting healthcare providers with patients via video chat or the web. “I'll continue to keep my eye on companies that can help consumers make more informed healthcare decisions and drive down costs,” he adds.
Although the recently passed tax bill repealed the ACA’s requirement that all individuals buy health insurance, the mandate remains in effect until 2019. In addition, most of the law’s provisions will remain intact. The Centers for Medicare and Medicaid Services (CMS) counted 8.8 million sign-ups after the most recent open enrollment period ended on December 15, short of the 9.2 million who enrolled last year.
In response to uncertainty over the ACA’s fate, several major health insurers withdrew from state exchanges. Forbes noted, however, that insurers planning to work on the exchanges next year could benefit from fewer competitors and rising price increases. Cigna, for example, found that its individual health insurance lines, including those listed on the ACA exchanges, were “slightly profitable” in 2017. Similarly, the Blue Cross Blue Shield Association found that ACA-linked insurers that offer narrower networks and a greater number of exclusive healthcare provider contracts are able to manage risk and set prices more accurately in the public marketplace.