As a result of the continued uncertainty of Affordable Care Act’s impact, Moody’s changed the outlook for U.S. health insurers to negative from stable. Uncertainty over the demographics of those enrolling in individual products through the exchanges and the unclear impact of the industry assessment tax that begins in 2014 are key factors in the change.

Changing dynamics will have an uneven effect on insurers, as the impact of these factors will vary by market segment and geography. Medicaid business is particularly vulnerable, as insurers cannot pass on additional costs to consumers, and it remains to be seen whether states will permit insurers to factor in the assessment cost in determining Medicaid reimbursement rates, Moody’s said. The rating agency’s view continues to be that the larger and more diversified insurers will be better positioned, both financially and strategically, to meet the challenges facing the sector.

“While we’ve had industry risks from regulatory changes on our radar for a while, the ongoing unstable-and-evolving environment is a key factor for our outlook change,” said Stephen Zaharuk, a Moody’s SVP and author of the rating agency’s recent industry outlook “US Healthcare Insurers: Outlook Changed to Negative from Stable.” “The past few months have seen new regulations and announcements that impose operational changes well after product and pricing decisions were finalized.”

Looking forward, Moody’s expects reduced net earnings margins of approximately 2% in 2014, compared to an average of 3% the previous year and smaller overall membership growth of approximately 1%, down from 3% in 2013, with company strategies continuing to focus on revenue and income diversification.

Burns writes for Insurance Networking News, a SourceMedia publication.

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