Dive Brief:
- The financial performance of the seven largest publicly traded U.S.-based insurers remains stable so far this year, despite “continued challenges” in the healthcare sector, according to a report out Tuesday from credit ratings agency Fitch Ratings.
- Though persistent staffing shortages and high inflation has been pressuring healthcare providers, the largest payers, which Fitch estimates to account for about 70% of the privately ensured U.S. population, reported a 7.7% operating EBITDA margin in the first quarter compared with 7.6% during the same period in 2022.
- However, the report noted that cost pressures at the provider level could impact payer and provider contract negotiations and cause premium rates to increase over the next few years, contributing to “heightened public discourse around healthcare costs for consumers.”
Dive Insight:
U.S. health insurers reported increased profits across the board during the COVID-19 pandemic as patients delayed care due to coronavirus-related shutdowns and decreased medical spending. Payers including Centene, Anthem and UnitedHealth all doubled profits or more during the second quarter of 2020, with record amounts of cash to insurers prompting Congressional committee investigations.
While the operating margin of earnings before interest, taxes, depreciation has decreased following pandemic highs, insurers are still reporting stable financial growth despite industry headwinds.
The largest insurers analyzed by Fitch reported a 10.5% year-over-year increase in revenue during the first quarter this year. Financial leverage for payers also increased from the prior quarter, reflecting an 11% increase in outstanding debt, according to Fitch.
The increase in debt was partially influenced by UnitedHealth Group, which issued senior unsecured notes on March 28 to fund its $5.4 billion acquisition of home health company LHC Group. The increase in debt was offset by an increase in absolute operating earnings for the largest insurers.
Despite stable performance, the ratings agency expects that cost pressures will be addressed in ongoing provider contract negotiations. Health insurers have been “somewhat insulated” from industry pressures like staffing shortages and the end of Coronavirus Aid, Relief, and Economic Security Act relief funds, due to pre-set multiyear reimbursement contracts between providers and payers.
However, those contracts are being negotiated, with the agency expecting cost pressures to begin reflecting in reimbursement rates and subsequent premium rate increases.