Health insurers have a neutral credit outlook for the coming year as the increased focus on diversification paid off, according to a new analysis from Fitch Ratings.
In addition, the healthcare industry's unique "structural characteristics" have insurers set to weather fluctuations in healthcare utilization, inflation and ongoing concerns about an economic recession. Payers emerged from the pandemic well positioned as decreases in routine care offset the increased expenses related to care for patients with COVID-19.
Fitch upgraded the individual ratings for Cigna, Aetna and Centene in 2022. Cigna's credit outlook improved as it focused on diversification within its Evernorth subsidiary, while Aetna's parent company, CVS Health, significantly decreased the financial leverage from its 2018 acquisition of the insurer.
Centene earned a rating increase for a similar focus on business diversification as well as geographic diversification.
“Despite a wide array of risks, including growing viral infection-driven utilization, potential recessionary pressures and mounting challenges within the broader healthcare system, existing structural characteristics of the system are expected to help mitigate associated adverse impacts on health insurer operating performance in 2023," said Brad Ellis, senior director at Fitch, in the report.
The analysis highlights several trends to watch that could impact insurers' credit outlook for the coming year. For one, while signs point to inflation in the U.S. economy beginning to slow, it still represents a potential risk for health insurers. Inflation does tend to be higher in healthcare than in other industries, the analysts note.
Providers' ongoing labor challenges could have an impact on the payer industry, but Fitch expects that insurers will be largely insulated from high inflation in healthcare.
The end of the public health emergency for the pandemic also looms and has implications for the industry, particularly as Medicaid managed care plans gear up for redeterminations to begin in April. However, as many insurers have expanded their offerings on the Affordable Care Act's exchanges, they are well positioned to manage this hurdle as well.
"In 2023, the sector faces an assortment of additional risks, and while not immune to the issues faced by other participants in the broader healthcare system and the U.S. economy, Fitch believes health insurers are well positioned to weather expected adverse scenarios at currently anticipated levels of severity," the analysts wrote in the report.