Moody’s: Obamacare Uncertainty Hurting Health Insurer Outlook
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The Fiscal Times
January 23, 2014

Obamacare’s rocky rollout is creating uncertainty for the insurance industry and rating agencies are taking note.

Moody’s Investors Service on Thursday announced that it has changed its outlook on the entire sector from “stable” to “negative” due to uncertainty surrounding the president’s health care law.

“While we’ve had industry risks from regulatory changes on our radar for a while, the ongoing unstable and evolving environment is a key factor for our outlook change,” Moody’s Senior Vice President Stephen Zaharuk said in a statement. “The past few months have seen new regulations and announcements that impose operational changes well after product and pricing decisions were finalized.”

The credit rating agency cited the low number of young people signing up for coverage as one of the main reasons for the downgrade. “Uncertainty over the demographics of those enrolling in individual products through the exchanges is a key factor in Moody’s outlook change,” Zaharuk said.

Administration officials have repeatedly stressed the importance of signing up enough young, healthy people to offset the cost of premiums for older, sicker Americans. They have previously said they need about 40 percent of total enrollment to be young people. So far, however, the administration’s latest estimates show Americans ages 18-34 account for just 24 percent of sign-ups.

Related: White House Claims It Will Reach Obamacare Goal

The White House and industry officials both say it’s too early to panic since there are still three months left in the enrollment period. “We think more and more young people will sign up as time goes by, just as they did in Massachusetts,” Gary Cohen, director of CMS’s Center for Consumer Information and Oversight, told reporters earlier this month. “We are very pleased with the percentage that we have and we expect that to increase.”

A recent analysis by The Henry J. Kaiser Family Foundation suggested that if Obamacare enrollment among younger Americans falls short of the administration’s goals, insurers would see their profit margins shrink but stability of the health care reform law might not be threatened.

Moody’s analysts cited the likelihood of lower profit margins as a factor in their updated outlook and said that they now expect 2014 margins to come in at about 2 percent, down from an average 3 percent in 2013, as insurers’ membership rolls grow more slowly.

Moody’s also questioned whether insurers properly factored in a new industry assessment tax into their premiums, so they might not receive enough to cover the tax.

“Medicaid business is particularly vulnerable to this disconnect, as insurers cannot pass on additional costs to consumers, and it remains to be seen whether states will permit insurers to factor in the assessment cost in determining Medicaid reimbursement rates,” Zaharuk said.

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Washington Correspondent Brianna Ehley, based in D.C., covers Congress, government agencies and spending issues, health care, and tax and economic policy for The Fiscal Times.