The record profits that health insurers reported in the second quarter of 2020 will likely subside over the next several months as they return excess income to plan members, according to credit ratings agency Moody’s Investors Service.
“We expect earnings to be substantially lower in the second half of the year,” Moody’s analysts wrote in a report published Monday.
Seven large publicly traded insurers reported earnings before interest, taxes, depreciation and amortization of $26.2 billion in the three months ended June 30, an increase of 87% over the same quarter in 2019. Those results, which were driven by low healthcare utilization amid the COVID-19 pandemic, are unlikely to repeat in the third quarter.
Analysts expect profits to deflate as insurers give funds back to customers. Insurers have lowered or eliminated patients’ costs for in-network COVID-19 tests and some have done so for treatment. Many insurers also waived cost-sharing for primary care. Some have offered premium “credits” to plan members, as many members were unable to use their benefits during the widespread shutdown of the U.S. healthcare system.
Insurers are giving back in part because they don’t want to be perceived as taking advantage of the coronavirus crisis, particularly in a election year, Moody’s said. But companies are also motivated by an Affordable Care Act rule that constrains insurer profits. Insurers must spend at least 80% of premiums on medical care and quality improvement, or else rebate the difference to plan members.
Meanwhile, several states have implemented retroactive rate refunds or other changes to recoup funds for their Medicaid programs, Moody’s said. Molina CEO Joseph Zubretsky in July told investment analysts that six states where it offers Medicaid plans enacted temporary retroactive rate refunds to claw back funds not spent on medical care.
While healthcare utilization plummeted during the second quarter as providers postponed elective procedures and patients put off routine care, Moody’s analysts expect utilization to bounce back to normal or even accelerate as people seek the care they put off or come down with COVID-19. The upcoming flu season, along with a potential coronavirus vaccine, could also elevate insurers’ costs, Moody’s said.
“Based on the evidence so far, we forecast that the industry will have a strong year, with results deliberately tempered by the various give-back programs enacted by the companies,” the report states.