Although health insurance companies in the past decade have significantly grown and diversified — thus strengthening their businesses — their credit ratings haven’t benefitted very much, at least according to one prominent rating firm. The reason, according to Dean Ungar of Moody’s Investors Service, is that insurers have taken on more debt in order to finance their acquisition sprees, and it’s not yet certain whether those moves will pay off.
Ultimately, “we think if the leverage can kind of stabilize and maybe come down a little bit, you [will] see a stronger business profile in terms of capabilities, scale and scope,” Ungar tells AIS Health, a division of MMIT.
In a report published earlier this month, Ungar and other Moody’s analysts argue that the health insurance industry has come a long way since 2010. The shift from fee-for-service to a value-based care model is ongoing, insurers are paying more attention to social determinants of health, and the changing business environment “has driven a significant amount of consolidation and vertical integration among our rated companies,” according to the report.