Health plans get negative credit rating

A global rating agency believes that health system reform could hurt insurance companies' bottom lines.

By Emily Berry — Posted Aug. 25, 2009

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One of the top credit rating agencies warned investors in July that health system reform has weakened the prospects for health insurers' profits.

In lowering its outlook to "negative," New York-based Fitch Ratings released a note July 24 outlining the reasons all of the health insurers it rates merited a cautious approach by investors.

The agency assesses the risk of investing in bonds issued by Aetna, Cigna, Coventry Health Care, Health Insurance Plan of New York, Health Net, HealthMarkets, Humana, UnitedHealth Group, WellPoint, Blue Cross and Blue Shield of Florida, Blue Cross of Idaho, and Health Care Service Corp., which is the parent of Blues plans in Texas, Illinois, New Mexico and Oklahoma.

"Though no [health reform] bill has been finalized yet, and multiple policy schemes are possible, most of the alternatives being debated could weaken health insurers' financial profiles in Fitch's view," the analysts wrote.

The first "pivotal risk" mentioned in the report is lawmakers' focus on insurers' profit margins as they seek savings in the health care system.

"Such a focus is clearly negative for the health insurance sector if reducing margins becomes a key component of final legislation," the analysts wrote.

Fitch viewed the creation of a public plan to compete with the private insurers as the most potentially damaging to future profits. The report also noted, however, that reform could rein in quickly rising medical costs that are hurting plans' profitability.

The agency said it would reassess each company's rating if and when health system reform legislation passes.

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