In announcing credit rating firm Moody’s downgrade of all health insurers, Senior Vice President Stephen Zaharuk placed the blame firmly and directly on the Obamacare rollout and implementation:
The ongoing and unstable and evolving environment is a key factor for our outlook change. The past few months have seen new regulations and announcements that impose operational changes well after product and pricing decisions were finalized.
Translation: Health insurers could lose their shirts if the assumptions they made in their premium calculations prove false. So far, it doesn’t look good. Zaharuk cited some of those uncertainties, including the demographics of those enrolling for coverage. The insurers assumed that the Obama administration was right when it estimated that at least 2.7 million young and healthy individuals aged 18 to 34 would sign up by the end of March. Only 24 percent of the 2.2 million enrolled by the end of the year fall into that category. Put another way, so far just 528,000 of the 2.7 million needed to make the math, and the economics, work out are in that category.
That’s why, in its report, Moody’s cut its earnings estimate for all insurers by a full third, while expecting enrollments will fall short by two-thirds.
There are other uncertainties, including the decision by the administration to allow insurers to continue to offer “bare bones” (read: low profit margin) coverages in response to pressure from those previously insured who had their present insurance plans terminated. The administration delayed the premium payments deadline (delaying expected cash flows to the insurers), delayed the sign-up date, pushed back the second-year enrollment period until after the November elections, and extended the enrollment deadline for those with pre-existing conditions.
There’s also the industry’s new tax on medical devices that insurers somehow had to factor into their calculations. Said Zaharuk: “While some insurers built this tax into their premium calculations, the amounts [they receive] may still be insufficient to cover their share of the assessment.”
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