Credit ratings look rosy for rest of 2005

Standard & Poor’s expects the health insurance industry sector to continue to improve its credit rating in the second half of the year, according to its report “Rosy Midyear Outlook for U.S. Health Insurance in 2005.”

This healthy glow can be attributed to a variety of factors, according to Shellie Stoddard, a credit analyst at S&P. They include stable pricing, as reflected in the industry’s reported earnings. “That and a favorable regulatory and political environment going forward,” says Stoddard, “make for a sustainable, positive outlook.”

S&P looked at 41 groups of companies with financial strength ratings. More than half the companies have an ‘A’ rating, the third highest rating a company can receive, and are more likely to be affected by adverse business conditions than insurers with ‘AA’ or ‘AAA’ ratings.

Ratings were raised for Kaiser Foundation Health Plan, California Physicians Service (Blue Shield of California), Sierra Health Services, Group Health Cooperative, ConnectiCare, and Health Care Service Corp. Only Health Net was downgraded.

The report also addresses the potential effect of the Medicare Modernization Act of 2003 on this sector. Managed Medicare is the only significant growth market for health insurers. “That is brand new revenue for these insurers,” says Stoddard.

“I’m having a greater appreciation for the dual eligibles — that’s six million potential members who can be enrolled on Jan. 1, 2006,” continues Stoddard. Dual eligibles are people who will be eligible for both Medicare and Medicaid benefits under the MMA. They had been receiving benefits under Medicaid, but will now be able to receive Medicare prescription drug benefits as well.

Credit ratings improved between May 2002 and May 2005 for companies rated ‘A’ and ‘BBB’More stability and fewer negative ratings in May 2005, compared to May 2004Source: Standard & Poor’s

Note: CreditWatch is a signal to users of S&P’s ratings system that there will be a change, either positive or negative, to a sector or industry.

Source: Standard & Poor’s

Note: Percentages refer to the 41 groups in the sector.

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