While health plans are not likely to feel the most acute effects from the Trump administration’s tariffs, they face downhill impacts from market volatility and rising costs, according to a new analysis from Fitch Ratings.
The report examines the way tariffs could affect multiple types of insurance and estimates health insurers in particular face moderate exposure to the slower economic growth and financial performance that are more indirect results of the tariffs.
Health plans benefit in this particular case from the vast majority of their operations being domestic. However, while that suggests the impacts will be fairly limited in the short term, the effects would ramp up should the tariffs remain in place for an extended period or if they evolve to be more restrictive.
As an example, tariffs on pharmaceutical products would also likely lead to short-term cost pressures on insurers, according to Fitch.
Potential inflation on healthcare costs will likely be borne by providers first, according to Fitch. So, when those organizations come to the table to negotiate reimbursement contracts, that is likely to be a key factor in those discussions.
Contracts are generally on multiyear cycles, so commercial plan contracts coming to an end in the near term could see premiums increase if providers are significantly impacted by the tariffs. For contracts with which renewals are farther out, insurers should track these trends so they can come to the table with a full view of cost pressures.
The uncertainty around the tariffs also introduces a variable into the actuarial analyses that plans use to price their products. This could lead some to overestimate the effects, or underestimate them, according to the report.
“If health insurers overestimate their increased medical costs, they will rebate any excess earnings,” the Fitch analysts said. “However, if they underestimate costs, they typically are unable to recover the losses.”
“With an eye on their competition, health insurers will likely focus on premium rate adequacy,” the researchers wrote.
Insurers that have a larger base in government insurance may see things play out differently from companies based more in the commercial sector, the report said. Should a significant economic downturn or recession follow the tariffs, that will likely shift many people to enrollment in government plans.
The tariffs also hold implications for insurers’ investments, according to the report. Changes in interest rates will impact market valuations, and bond defaults become more likely in this environment.