Moody’s downgrades health insurance outlook as medical costs surge

Editor's Note

Moody’s Ratings has shifted the health insurance industry’s credit outlook from stable to negative, according to a February 3 article in Fierce Healthcare.

According to the article, the downgrade is due to escalating medical costs that outpace reimbursement rates. Analysts project an 8% rise in commercial market spending this year, the fastest in 13 years, with individual market spending increasing by 7.5%. Medicare Advantage costs are also expected to climb between 5% and 7%, driven by inflation, prescription drug prices, and increased behavioral health utilization.

Premium hikes are unlikely to fully offset these rising costs, especially in the commercial market, where insurers face competitive pressures in contract negotiations with providers, the outlet reports. While Medicare and Medicaid plans have some flexibility to adjust benefits, they are also expected to struggle with cost containment.

Regulatory uncertainty adds to industry challenges. As detailed in the article, congressional scrutiny of pharmacy benefit managers (PBMs) could negatively impact companies like CVS Health, UnitedHealth Group, and Cigna, particularly if bipartisan legislation restricting PBM ownership structures passes. Potential policy shifts under a future Trump administration also create instability.

A potential bright spot for 2025 is expected enrollment growth in Medicare Advantage and individual market plans, while Medicaid enrollment stabilizes post-redetermination, Fierce Healthcare reports. Moody’s could restore a stable outlook if cost trends moderate and regulatory conditions remain favorable.