A report recently published by Moody’s Corporation analyzed the current situation of the Affordable Care Act (ACA) health insurance exchanges, noting that any of the solutions the Obama administration could come up for its current issues might lead to negative credit for insurers.
In recent months, major health insurers like Aetna, Humana, and UnitedHealth have announced their withdrawal (and/or limited participation) on the federal health exchanges next year. Further exits are anticipated as the remaining carriers review the sustainability of offering plans on the marketplaces.
The report estimated that the private health insurance sector’s losses from the ACA exceeded $3 billion in 2014. It also pointed out that the financial results of many carriers for 2015 revealed even higher losses.
Moody’s suggested that the withdrawal of major health insurers from the ACA marketplaces could cause a chain reaction.
“Management teams at smaller insurers will ask how their firms can succeed when much larger carriers . . . have concluded that the ACA business is unprofitable,” the report said.
The report noted that the Obama administration would probably take one of three solutions to solve the dearth of ACA-participating carriers:
- The creation of a government-run health insurer that would compete with private health insurers; the original public-option proposal in the ACA
- Insurers who do not participate on the exchanges will be barred from participating in government contracts (i.e., Medicare Advantage and Medicaid)
- Non-participating carriers would be levied financial penalties
All three solutions, Moody’s stresses, “would have negative consequences for insurers.”
The risk of more health carriers leaving the federal exchanges puts the stability of the insured risk pool in question, Moody’s added. The report cites a study by the Kaiser Family Foundation, which found that 31% of counties in the US will only have a single insurer participating on their public exchanges next year. Building on that fact, Moody’s explained that a lone carrier in an unprofitable marketplace becomes further exposed to unprofitability, and would attract “a greater proportion of higher-risk individuals in search of coverage.”
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