AM Best maintains stable outlook on US health insurance segment
Credit rating agency AM Best has maintained its stable outlook for the US health insurance market, citing strong capitalisation and profitability as key factors, among others, despite declining underwriting results.
In 2023, the health insurance sector witnessed favourable overall earnings, with net investment income contributing positively to the industry’s financial performance, Best’s Market Segment Report, “Market Segment Outlook: US Health Insurance” stated.
However, the report noted, some product lines experienced narrowing profit margins, requiring strategic adjustments by insurance plans to navigate these challenges.
This trend continued through the first half of 2024, although declines in underwriting income were offset by a rise in net investment income and realized capital gains.
Analysts expect the overall underwriting income in 2024 to be lower, driven by declining results in Medicare Advantage (MA) and Medicaid managed care, though offset by favourable earnings in the commercial segment, which in 2023 were the highest in three years.
The commercial segment’s performance has benefited from the growth in the individual ACA segment, reduced COVID-related claims, and higher rate adjustments to account for rising medical cost trends.
Jennifer Asamoah, senior financial analyst, AM Best, said: “The overall commercial group segment has not experienced substantial enrolment gains, but membership growth has been helped by the individual segment, which gained enrolment due to a shift in members from Medicaid, for which some individuals are no longer eligible because of redeterminations.”
The report highlights the rising cost pressures faced by health insurers, primarily due to the increasing expense of pharmaceuticals, including traditional medications as well as gene therapies and other specialty drugs.
The increased usage of high-cost specialty pharmaceuticals to treat a growing number of medical conditions, while offering significant medical advancements, come with high price tags elevating pharmaceutical spend.
Timothy Willey, financial analyst, AM Best, stated: “Innovative new specialty drugs and GLP-1s are unlocking new possibilities for patients but are resulting in cost pressures for health insurers, as are gene-therapy drugs that can be required for lifelong treatment.
“The lack of competitive alternatives to many of these drugs has allowed prices to remain elevated; for example, generic alternatives to GLP-1s are not expected until at least 2026.”
AM Best analysts noted that profitability in the Medicare Advantage and Medicaid managed care lines of business may fall to levels below historical norms in 2024.
Despite this, the overall US health industry is expected to remain profitable in 2024, as well as 2025, although net income may decline.
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