Moody’s downgrades outlook for health insurers

January 23

Major credit-rating firm Moody’s on Thursday downgraded the outlook for health insurers from stable to negative, citing the new health-care law’s botched rollout as a significant factor.

Moody’s highlighted the relatively low sign-up rate among young adults and a slew of last-minute regulatory changes by the Obama administration as posing risks to health insurers selling policies on the new exchanges.

“We’ve seen a lot of risks come up on our radar screen,” said Stephen Zaharuk, Moody’s senior vice president and author of the report. “We thought they could handle some of them, but as they kept piling up, that became more of a concern.”

Recent enrollment data shows that 24 percent of enrollees on the exchanges are young adults between 18 and 35, a demographic whose lower-than-average health-care costs would be expected to hold down premiums. The Obama administration has said it believes it needs 40 percent of exchange sign-ups to come from this age group.

“If there is an older, less healthy population, the rates are going to face upward pressure,” Zaharuk said.

Moody’s also cited as a risk factor the possibility of additional cuts to Medicare Advantage, a program in which the federal government contracts with private insurers to provide health benefits to seniors.

The Affordable Care Act mandates specific cuts to Medicare Advantage plans, which have typically spent more per enrollee than the government-run plan. If the Obama administration decides to go above and beyond that reduction, Moody’s projects “it could result in significant premium increases and/or benefit reductions, or additional market exits by insurers.”

Health-insurance executives have downplayed the Affordable Care Act’s rocky rollout as a major business concern, noting that they always expected the first year to be difficult. As a result, most viewed 2014 as an experiment and sold plans on only a handful of state exchanges.

“Our view is we’re still in the early innings,” Cigna chief executive David Cordani told investors last week at the JPMorgan Healthcare Conference in San Francisco. “The first couple of years will be choppy, and we’re learning whether it can find its legs.”

Also Thursday, a federal judge in Missouri temporarily blocked enforcement of a state law that limited the activities of workers and groups being paid by the federal government to help people sign up for insurance under the new law.

Missouri lawmakers, most of whom oppose the law, approved regulations last year requiring these “navigators” to get state licenses and pay a fee. They also restricted what the workers could discuss with consumers and set fines for violations. Similar restrictions have been passed in more than a dozen states.

But in a 16-page opinion, U.S. District Judge Ortrie D. Smith said the Missouri regulations improperly interfered with the implementation of the health-care law because federal law trumps state law under the Constitution.

In issuing the preliminary injunction, Smith also noted that Missouri declined to set up its own online health-insurance marketplace, leaving the task to the federal government. As a result, the state did not have the right to regulate the conduct of people working on the marketplace’s behalf, he wrote.

“We think it’s a great victory for consumers,” said Jay Angoff, the attorney for the plaintiffs. “The court in this decision makes it clear that states cannot interfere with those functions as authorized by the Affordable Care Act.”

A spokeswoman for the Missouri attorney general’s office said Thursday that officials are reviewing the ruling. The state may appeal the decision.

Sandhya Somashekhar is a health reporter for the Washington Post.
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