The Obama Administration's latest delays and policy tweaks have credit rating analysts getting more worried about insurers, even as large companies like Aetna and Cigna insist that insurance exchanges are only minor parts of their business strategies.
Several recent changes in particular are "credit negative," wrote Moody's senior VP Steve Zaharuk in the rating agency's latest outlook: another delay of employer mandate, to 2016, and proposals to expand provider networks and extend non-ACA compliant policies.
Those new policy proposals come as large publicly-traded insurers recently reported 2013 financial results, most them mediocre and reflecting ongoing pressure on a few fronts, notably Medicare Advantage. Taken together, the new ACA changes and industry headwinds leave analysts like Zaharuk pointing to U.S. insurers as potential credit risks.
The delay of the employer mandate, Zaharuk argued, "will cause complications for insurers and confusion for employers and employees" and make "was going to be a challenging selling season for insurers in the small group market just became more challenging."
For one thing, insurers may have already developed ACA-compliant small group policies, but with the mandate delayed, employers "may want to retain their existing policies for another year, forcing insurers to resurrect plans they had intended to discontinue," Zaharuk argued. One risk for employers is that equation, though, is exposure to penalties if any employees buy subsidized exchange plans, which may actually work in the favor of insurers if employers decided to get the transition out of the way.
The Centers for Medicare & Medicaid Services' recent proposal to require expanded networks for qualified health plans is bound to be debated and potentially scaled back through the federal rulemaking process. But Zaharuk thinks that any mandated provider network expansion will drive up premiums and "further discourage enrollment by the younger and healthier population."
And if that trend -- higher premiums, fewer young enrollees -- continues "these products would eventually become unsustainable," Zaharuk argued.
The other proposal, extending the so-called "administrative fix" to quell consumer angst stemming from cancelled health plans, could contribute yet more havoc to insurance markets. The Obama Administration is mulling allowing consumers to keep non-ACA compliant plans until the end of 2016, two years longer than initially proposed.
The original extension was greeted with skepticism from insurers, and "has had a negative effect on the risk profile of the exchange pool as healthier younger members took advantage of this waiver," wrote Zaharuk, a former lead underwriter at Prudential Healthcare before the division was sold to Aetna in 1999.
"We believe that continuing the waiver for another two years will exacerbate the issue and will likely result in higher premiums for exchange policies with an insured population that will be less healthy and less profitable for insurers."