Slowing economy could hurt insurers, Moody’s says

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A slowing economy and high inflation could pose headwinds for insurers, Moody’s Investors Service said in its August report.

A slow down in the economy may result in job losses and clip commercial enrollment, which would push down a key earnings driver for insurers, Moody’s analysts said in a report sizing up the challenges ahead for the healthcare industry.

The US gross domestic product, a comprehensive measure of economic activity, contracted again in the second quarter, sparking recession concerns.

However, Moody’s noted the effect of any economic slowdown or continued inflation is likely to have a modest impact on insurers. That’s because insurers are less exposed to supply chain issues, higher interest rates and labor shortages, unlike hospitals, Moody’s said.

In the beginning of the pandemic, insurers saw commercial enrollment dropped by 2.7 million people amid layoffs and job cuts. But the government-sponsored program Medicaid offset those losses by adding 5 million people to coverage, Moody’s said.

Government programs are now bigger than they were during the 2008 recession “which would lessen the impact of any unemployment-related enrollment declines,” Moody’s said.

Plus, many insurers have more diverse revenue streams than they did in 2008, owning more than just insurance assets, according to the ratings agency, which would help offset enrollment declines.

However, fears of getting laid off may spur those with commercial insurance to utilize the health benefit before losing their job and coverage altogether. A similar trend was recorded in 2008, Moody’s said.

Another headwind for insurers could be persistent inflation that hangs around for years, which would likely result in providers demanding higher reimbursement, likely leading to higher premiums for members. This would put continued pressure on commercial enrollment for insurers.

“In this scenario, increases in commercial premiums could exceed the rate of inflation. If that were to happen, small businesses with less than 50 employees, which are not required by law to provide insurance, could drop coverage,” Moody’s report said.

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