Health Insurers Face the Rating Analysts

What You Need to Know

Health insurers increased EBITDA despite the effects of the COVID-19 pandemic.
COVID-19 treatment ended up costing more.
Obstacles appeared in both the Medicare plan market and the individual major medical market.

Big, publicly traded health insurers are reporting higher operating earnings, but outside problems slowed their 2021 earnings growth.

Dean Ungar, a senior credit officer with Moody’s Investors Service, and other Moody’s analysts have given that assessment in the rating agency’s review of the insurers’ latest results.

One measure of the insurers’ earnings, “earnings before interest, taxes, depreciation and amortization,” or EBITDA, increased 3% between 2020 and 2021.

That figure was “below our forecast of mid-to-upper single digits and also below growth in recent years,” the analysts write.

The analysts estimate that the insurers’ EBITDA growth will increase to somewhere between 10% and 15% this year.

Here are three of the forces that might have caused the insurers to fall below Moody’s projections in 2021, according to the analysts.

1. The COVID-19 Pandemic

Earlier in the pandemic, surges in the number of severe COVID-19 cases usually reduced the amount of care patients received for other conditions. That helped hold insurers’ health care spending steady.

In the fourth quarter of 2021, weaker-than-expected earnings growth was due partly to the increased cost of coping with the effects of the COVID-19 delta and omicron variants, according to the Moody’s analysts.

2. A Shadow Over the Medicare Advantage Plan Market

Early this year, Humana implied that it saw what it perceived to be potentially undisciplined price competition in the Medicare Advantage plan market.

Executives from other insurers later said the level of competition in the market seemed to be at the normal level of ferocity.

The Moody’s analysts say they believe that enrollment growth at several large insurers has been slowing, or is likely to slow this year, and that “it seems clear that competition is forcing more of a trade-off between growth and margin.”