Dilok Klaisataporn
As 2023 draws to a close, Moody’s Investors Service said in a recent report that the full-year outlook for health insurers remains stable despite upcoming challenges from changes to Medicare Advantage star ratings. and the GLP-1 class of weight loss medications.
Citing a decline in Medicaid memberships due to the resumption of eligibility reviews, Moody’s projects lower revenue growth for health insurers this year even though their third-quarter earnings matched second-quarter performance and Industry stability is in line with expectations.
However, the firm said industry-wide financial results met its forecasts despite certain unforeseen headwinds, such as an increase in medical utilization among Medicare Advantage members.
In June, UnitedHealth (New York Stock Exchange: UNH), the largest managed care player in the Medicare Advantage market, warned that the post-COVID normalization of care utilization among seniors would impact its healthcare index in the second quarter.
UNH shares, along with those of its main rival in the MA market, Humana (New York Stock Exchange: humming), reacted alongside peers Alignment Healthcare (ALHC), Clover Health (CLOV), and CVS Health (New York Stock Exchange:CVS).
Moody’s maintains that while higher MA utilization continued in the third quarter, the trend stabilized but did not improve.
Despite the expected disruption to health insurers from the ongoing Medicaid redeterminations, their impact so far this year has so far been “relatively small,” the analysts argued, adding that the Most members who lost coverage enroll in other health plans.
During the pandemic, a three-year pause in eligibility reviews led to a 32% increase in Medicaid memberships among market players like Centene (New York Stock Exchange: CNC), Elevance Health (ELV) and Molina (MOH).
“As expected, this is reducing the profit growth of the health insurers we rate, but it is just one of several drivers of this trend,” the analysts wrote, adding that “we expect the majority of disenrolled individuals to re-enroll in the individual market or in insurance-based in employers.” “
However, Moody’s expects long-term implications of how Medicare Advantage star ratings are calculated. The annually updated system ranks MA plans on a performance-based scale of one to five, and plans with a rating of four or five stars are eligible to receive bonus payments when they apply for reimbursement from Medicare.
In October, Elevance (ELV) shares fell after disclosing that the percentage of its MA members in plans with ratings of four stars or higher had fallen to 34% for the 2024 rating year from 64% a year ago.
Other notable trends in the industry include very popular but expensive weight loss drugs known as GLP-1 receptor agonists from Novo Nordisk (NVO) and Eli Lilly (LLY).
Moody’s argued that while health insurers can reflect their costs in policy rates, it is a risk to their corporate clients if LPG-1 use is not properly managed.
“Health insurers can include these costs in policy prices“, the analysts wrote, adding that “however, for corporate clients who contract with health insurers only for administrative services and who otherwise self-insure, the risk is greater, especially if utilization is not effectively controlled “.
