Moody’s just downgraded the health insurance industry

From the Washington Post

Stephen Zaharuk is a Moody’s senior vice president who covers the health insurance industry. That makes him the guy who authored the report downgrading the credit outlook for health insurance companies from “stable” to “negative” on Thursday. We spoke Thursday afternoon about his outlook for the health-care industry, the big unknowns looming in 2014, and why the downgrade happened now. Some of his quotes made it into this story in Friday’s paper and what follows is a transcript of our discussion, lightly edited for clarity.

Sarah Kliff: In your report on health insurers, you list a lot of different factors that contributed to the downgrade. Can you give any sense of how important each one was? Was it the rocky rollout of the health-care law driving this? Or something else?

Stephen Zaharuk: Each one has an effect. We started with the Affordable Care Act, which obviously has the most interest as the newest piece. Basically we’re seeing the rollout, which wasn’t as sufficient as it should have been, and we’re not seeing the enrollment numbers that were expected, based on the insurers’ pricing assumptions. We’re also hearing about back-end issues, which haven’t been in the forefront of the news. The more concerning thing is, are they going to get paid the premiums that they need in the exchanges?

Also concerning is the fact that, because of this rollout, there are changes made to regulations. We changed the enrollment dates and extended enrollment for a period of weeks, and kept policies that aren’t compliant with the Affordable Care Act for another year. All these things, they are probably not, by themselves, a big worry. But together they add more risk. There’s a concern there could be more of these to come. Once you have the precedent of changing a regulation with an announcement like that, that makes the financial landscape uncertain.

That’s all to do with the Affordable Care Act. We also have Medicare Advantage which is a big program for insurance companies. About 28 to 27 percent of seniors are signed up for that. In 2014, there was a lowering of the amount they get to provide that care, and they’re scheduled to get another reduction. We’re concerned about how far these cuts will go, and how long this will be a viable product. You might see a lowering of benefits, or some might exit the marketplace.

And then there’s just the normal pressures we are seeing because of the economy. Employment is not not as robust as we’d hoped, so commercial membership is pretty stagnant.

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