Insurers' outlook stable as 2023 nears its end, says Moody's

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Despite some challenges, the financial picture for health plans remains stable as the year comes to a close, finds a new report from Moody's Investors Service.

Third-quarter earnings for publicly traded health insurers in Q3 was comparable to the prior quarter, with strong net investment income on the positive side and continued higher utilization in Medicare Advantage on the negative side, the report found. Overall, average year-over-year EBITDA growth for the group was 13%–8%, excluding the impact of net investment income from both periods.

Earnings also got a boost from improved individual market performance and higher levels of commercial enrollment. Membership has grown despite the ongoing Medicaid redetermination process.

WHAT'S THE IMPACT?

There were a number of notable events that took place in Q3, including 2024 star ratings that were positive for Aetna and negative for Centene. The Medicare Advantage Star Ratings, which were released in October, have important financial implications because higher-rated plans get better reimbursement from the government. Nationally, star ratings changed little from last year, but there was variation among Moody's rated companies: Aetna saw significant improvement with 87% of members now in four-star plans or better, up from 20% last year, while Elevance had a large decline to 35% from 64%. Centene showed some improvement, but its overall results remain poor.

Meanwhile, GLP-1 drugs are promising hope, but at a high cost. GLP-1 drugs have been generally prescribed for diabetes but have shown great success in facilitating weight loss, so demand is building, Moody's said. But they're very expensive. CVS Health noted that it would cost $1 trillion if all people that were clinically obese were prescribed one of these drugs.

In the case of UnitedHealth, prescriptions for weight loss are currently 20% of total prescriptions. Health insurers can include these costs in policy prices, but for corporate clients who contract with health insurers for administrative services only and otherwise self-insure, the risk is higher, especially if utilization is not effectively controlled.

Moody's also noted that the Medicaid redetermination process is close to halfway complete. As of early November, at least 10.1 million Medicaid enrollees have been disenrolled. About 71% were disenrolled for procedural reasons, and many will be re-enrolled when the paperwork is completed. As Moody's expected, this is somewhat reducing the earnings growth rate of the health insurers it rates, but it's only one of several drivers of this trend.

Moody's expects that most of the disenrolled patients will re-enroll in the individual market or in employer-based insurance. The redetermination process should be completed sometime around May 2024.

Among other findings, MA utilization remained high in Q3. MA utilization spiked in Q2, primarily as a result of outpatient procedures; the trend stabilized in Q3, but didn't get better. The companies have been able to incorporate this trend into pricing for next year, said Moody's. Centene was an exception, with a lower MA medical loss ratio in Q3 2023 versus last year.

THE LARGER TREND

Overall, the 2023 outlook for health insurers is stable, despite Moody's forecast of slower EBITDA growth in the mid-to-high single digit range, down from 12% in 2022. The company's outlook was based on reduced membership as a result of Medicaid redeterminations and the impact of a possible recession on commercial membership. But with no recession this year, commercial membership has been better than expected, though its growth has been offset by higher-than-expected MA utilization.

Although Medicaid redeterminations are underway, their impact so far has been relatively small. Year-to-date EBITDA growth through September 30 was 10.6%, but only 4% excluding the benefit of improved net investment income, which was driven by higher interest rates. Meanwhile, Moody's had expected incremental improvement in individual market results, and the individual market is performing even better than originally forecast.
 

Twitter: @JELagasse
Email the writer: Jeff.Lagasse@himssmedia.com