Moody’s Expects More M&A Activity in Health Insurance Sector as Prospects for Comprehensive Reform Fade
With the open capital markets and the threat of comprehensive healthcare reform diminished, Moody’s believes that there will be greater consolidation activity this year.
In addition, the insurers’ focus on lower cost products, wellness programs, bundled contracting with providers, and a host of data initiatives requiring a substantial IT investment will very likely provide an additional impetus for M&A activity. Moody’s says in a new sector report.
Other highlights:
Medicare Advantage: Although very popular with over 11 million seniors, Moody’s expects to see continuous pressure on reimbursement rates, as well as a call for legislation to change the way these rates are determined. As a result, Moody’s thinks it probable that some insurers will begin to transition away from this product over time, if profit expectations continue to decline.
Individual and Small Group Markets: Because the proposed healthcare reform bills would have pressured the profitability of products in the individual and small group markets, Moody’s expects that — without a renewed push on healthcare reform — there could be more investment and expansion into these markets.
Offsetting adverse medical-cost trends and membership attrition, the largest US healthcare insurers utilized expense savings and realized capital gains to bolster their full-year 2009 net income margins above 2008’s levels, according to a new sector comment by Moody’s Investors Service. Nevertheless, Moody’s continues to believe that political and economic uncertainties support a negative outlook on this industry.
The fourth-quarter 2009 earnings results for the major healthcare insurers (Aetna, CIGNA, Humana, UnitedHealth, and WellPoint) contained no real surprises, Moody’s says. Despite steady pressure on the insurers’ earnings throughout last year, the rating agency notes that these companies continued to demonstrate strong liquidity, while reducing financial leverage. (A summary of key credit metrics, with a preview of 2010 expectations, is provided in the report.)
For details, see Moody’s Comments on Q4 2009 Healthcare Insurers’ Earnings and Healthcare Reform. (Premium)
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