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Fitch: Repeal and Replace May Spur US Health Insurer Divergence
May 5, 2017 / 2:22 PM / 6 months ago

Fitch: Repeal and Replace May Spur US Health Insurer Divergence

(The following statement was released by the rating agency) CHICAGO/CARACAS, May 05 (Fitch) Healthcare "repeal and replace" could increase divergence between U.S. health insurers' operating strategies and lead to wider variation in financial results across the sector, as insurers in different states could be operating under different rules, Fitch Ratings says. The American Health Care Act (AHCA), approved yesterday by the House of Representatives, would allow states to enact waivers removing certain constraints on insurers. We expect insurers in states that obtain waivers will have more flexibility in underwriting and product design than they have under the Affordable Care Act (ACA). This enhanced flexibility is likely to generate more variability among individual insurers' financial results, product offerings and marketing strategies. Waivers could exempt insurers from providing certain health benefits required under the ACA, and allow them to charge older customers higher premiums than those implied by the ACA's 3:1 ratio, which limits premiums to three times those for younger, healthier customers. States could also apply for a waiver allowing higher premiums for customers with pre-existing health conditions, provided they established mechanisms such as high-risk pools to help cover people with serious, expensive health problems. The AHCA changes are focused on the individual and Medicaid markets rather than the group insurance market for employers. Individual and Medicaid business represents fairly small proportions of membership and revenues for most of the health insurers we rate. The AHCA would also: eliminate tax penalties for individuals who do not purchase health insurance ("individual mandate"); replace premium subsidies with a system of tax credits; allow for impositions of premium penalties for those who let coverage lapse; remove a number of taxes applied to a range of medical-related industries; and cut back on Medicaid expansion, including movement to federal funding under a fixed, block-grant approach. We believe the removal of the individual mandate could result in fewer healthy individuals participating in the private health insurance market, which would increase underwriting risk for health insurers. However, other parts of the legislation, such as premium penalties for coverage gaps and moving a portion of the least healthy individuals into high-risk state pools, could act as an offset. If the legislation reduces participation in the individual market, health insurers that have relied on ACA exchange-based products for growth and invested heavily in these products could be adversely affected. Changes to Medicaid funding to rely more on per capita and block-grant funding are likely to put pressure on state budgets and adversely affect Medicaid-focused insurers. However, these adverse effects might be mitigated by states' desire for budget certainty, leading them to expand risk-sharing with private insurers as a part of managed Medicaid programmes. The AHCA is set to replace the ACA but could face significant revisions in the Senate before it becomes law. Any such changes would then need to pass a joint House-Senate conference committee, before being signed into law by the President. Fitch's fundamental outlook for the health insurance sector is negative, partly reflecting the regulatory uncertainty that has surrounded the sector since the November 2016 elections. Contact: Mark Rouck, CPA, CFA Senior Director Insurance +1-312-368-2085 Fitch Ratings, Inc. 70 West Madison Street Chicago, IL 60602 David Prowse Senior Analyst Fitch Wire +44 20 3530 1250 Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email: The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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