Obamacare Fallout: Moody's Announces Negative Outlook for U.S. Health Insurance Industry

Moody’s has downgraded the outlook on the U.S. health insurance industry from stable to negative in light of unpredictability caused by Obamacare. Moody’s also cites the poor demographic mix as an important factor in their decision.

Moody’s Senior Vice President Stephen Zaharuk explains “the ongoing unstable and evolving environment
is a key factor for our outlook change.” He added “The past few months have seen new regulations and announcements
that impose operational changes well after product and pricing decisions
were finalized.” This is a reference to a series of deadline changes and extensions, including one that allowed anyone with a cancelled policy to qualify for a renewal under the hardship exemption in the law.

The other factor motivating Moody’s is the recently announced demographic mix which shows fewer “young invincibles” than had been forecast have signed up. “Enrollment statistics show that only 24%
of enrollees so far are aged 18-34, a critical group in ensuring
that lower claim costs subsidize the higher claim costs of less healthy,
older individuals” the announcement reads, adding “This is well short of the original 40%
target based on the proportion of eligible people in this cohort.”

As a result, Moody’s believes insurers will see “reduced net earnings” in 2014. The suggest the average profit margin of 3 percent will drop to 2 percent. That estimate may be overly-optimistic. A widely-cited estimate by the Kaiser Family Foundation estimated between 1.1 and 2.4 percent of revenue could be taken up by an older-than-anticipated risk pool.

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