Fitch’s outlook for U.S. Health Insurance Sector in 2024 remains neutral

Prolonged higher interest rates will remain more of a boon for U.S. health insurers in the coming year, although that benefit has a limited shelf life, according to Fitch Ratings’ outlook.

Health insurers typically have short duration asset portfolios comprised primarily of high quality fixed-income investments, so higher rates have been a benefit with proceeds from their existing bonds able to be reinvested at higher current rates

Senior Director Brad Ellis

However, companies with outstanding debt in their capital structure have not had to refinance to any great degree over the past two years, so they continue to benefit from the historically low rates at which they borrowed.

Fitch’s outlook for the U.S. health insurance sector in 2024 remains neutral. Companies continue to navigate elevated healthcare utilization, a continuing pandemic hangover, winding down of pandemic-related government support to the healthcare system, and inflationary pressures and risks of a slowing U.S. economy.

Fitch’s outlook for U.S. Health Insurance Sector in 2024 remains neutral

Medicaid redetermination is an area worth watching again in the coming year. States continue to redetermine eligibility for Medicaid coverage, while the U.S. Department of Health and Human Services estimated that up to 15 mn individuals covered by Medicaid and the Children’s Health Insurance Program are in danger of losing coverage.

The high rate of procedural disenrollment could potentially drive an increase in overall acuity within the pool of Medicaid recipients

That said, any impact from such adverse selection will be modest and short-lived.

The cost of job-based health care insurance coverage for 2024 is expected to rise at its fastest pace in years as inflation pervades insurance policies, according to CNN.

Companies plan to shoulder most of the increase, but many workers could also feel the pinch in the form of higher premiums and out-of-pocket costs for care. Some companies may also limit the coverage in various ways to blunt the jump in cost.

Fitch’s outlook for U.S. Health Insurance Sector in 2024 remains neutral

Workers will learn just how much more they’ll pay during their employers’ open enrollment period, which typically takes place at this time.

Employees are shelling out an average of $6,575 for their share of the nearly $24,000 annual premium for a family policy and just over $1,400 for their share of the $8,435 annual cost of single coverage, according to KFF.

Nearly 153 million Americans have job-based health insurance, the largest source of coverage by far, according to KFF.

There are multiple reasons why health care costs are rising swiftly now, said Debbie Ashford, the North America chief actuary for Health Solutions at Aon, which pegs the increase at 8.5% for 2024, nearly double the rate for this year.

Higher prices account for more than half of the jump. Though inflation hit its peak last year, the impact is often delayed in the health care sector because contracts between insurers and medical providers are usually locked in for several years.

Nataly Kramer   by Nataly Kramer