Most U.S. health insurers will remain profitable despite the Covid-19 pandemic, according to research by Moody’s Investors Service.
That forecast certainly proved to be valid in the case of UnitedHealthcare Group (UNH, Financial). On April 15, the industry giant said revenue for the first three months of the year was more than $64 billion, up from just more than $60 billion last year. The company topped earnings expectations, coming in at $5 billion, up slightly from the same period a year earlier.
We’ll find out how other top insurers fared when Anthem (ANTM, Financial), Cigna Corp. (CI, Financial) and Centene Corp. (CNC, Financial) report first-quarter sales and earnings next week.
One reason the effect of Covid-19 on the results of health insurers might be somewhat skewed is that the virus’ incidence rate in the U.S. only started accelerating in mid-March. Many health experts forecast growth in infections and deaths, yet UnitedHealth is maintaining its earnings outlook of $15.45 to $15.75 per share.
Moody’s said the coronavirus is likely to take one of three paths: a “mild” outbreak with an assumed infection rate of 2%, a “medium” scenario with 10% infected and a “severe” scenario with 40% infected.
The ratings firm also said a mild infection rate could actually benefit insurers because many elective procedures would be canceled or postponed. That’s exactly what UnitedHealth experienced in the first quarter. CEO David Wichmann said providers were obligated to cancel elective procedures to free up resources for the pandemic.
In the event of a medium outbreak with 10% infected, insurers would still remain “solidly profitable,” according to the bond credit rating agency. The outlook is far less sanguine for the third scenario, which would likely cause a recession and, with it, a drop in commercial enrollments and revenues.
Fitch Ratings paints a far less optimistic picture. The credit rating agency revised its stable outlook for the U.S. health insurance industry to negative due to adverse effects from the Covid-19 outbreak, according to an article in Becker’s Payer Issues.
Fitch analysts predict said health insurers will see their profitability and debt service indexes weaken as claim costs due to the growth in testing and treatments, including hospitalizations.
The shares of health insurers have been on the upswing since late March, when it appeared all but sure that Senator Bernie Sanders, the proponent of Medicare for All, would not be the presumptive Democratic nominee for president. Sanders made it official when he dropped out of the race on April 8.
Despite a boost from Sanders' departure, the shares of U.S. health insurers are down more than 7% year to date, according to the iShares ETF. Among the insurers mentioned, UnitedHealth shares are flat, Anthem is down 11% and Cigna shares have declined 9%. Centene is bucking the trend with a 13% boost in the value of its stock.
Disclosure: The author holds no position in any of the stocks mentioned in this article.
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