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Fitch: Executive Order Increases ACA Healthcare Exchange Risks
October 13, 2017 / 1:19 PM / in 4 days

Fitch: Executive Order Increases ACA Healthcare Exchange Risks

(The following statement was released by the rating agency) CHICAGO/NEW YORK, October 13 (Fitch) The executive order signed by U.S. President Donald Trump yesterday is likely to increase the risk profile of health insurance exchanges that were established by the Affordable Care Act (ACA), Fitch Ratings says. This could prompt insurers to re-evaluate their approach to exchange business in the future. However, the near- to mid-term financial effects of the executive order on rated insurers should be modest. The executive order will promote product differentiation and price competition among health insurers in the individual health insurance market. Healthy individuals are more likely to find products with lower pricing and lower benefit levels compared to exchange-sold products. As more of these healthy consumers choose to purchase off-exchange products, the risk profile of remaining health insurance policies sold on the ACA's insurance exchanges is likely to increase. The executive order will likely have modest near- to mid-term effects on Fitch-rated health insurers' credit profiles since it focuses principally on the individual health insurance market and individual membership represents a comparatively small portion of most of Fitch's rated health insurers' membership. Nevertheless, the order has the potential to alter the individual health insurance market's competitive environment as it becomes easier and more attractive financially to develop unique pricing strategies and product designs that spur market segmentation. A key consideration for many consumers currently purchasing their health insurance on an exchange is whether an off-exchange product's lower price more than offsets the effect of foregoing subsidies provided by the federal government to exchange customers. According to an August 2017 report published by the Kaiser Family Foundation, 84% of enrollees purchasing health insurance on the ACA-sponsored exchanges received subsidies in the form of premium tax credits. We are uncertain as to when the effects of the executive action will start to be felt in the individual health insurance market. Premium rate filings and accompanying benefit plans for 2018 are essentially complete. As a result, our assumption is that while aspects of the executive action will begin to be felt in 2018, most of the effects are likely to be felt in 2019 and beyond. Looking to the upcoming 2018 open enrollment season, we believe that health insurers have generally been able to price for two key uncertainties that had already surfaced - potential disruption of the cost reduction subsidies and resumption of the industry-wide health insurer fee - but it is unclear when they would have to start developing pricing and benefit structures required by the executive action. We believe the executive order will have little effect on the managed Medicaid market. In contrast, significant portions of the ACA repeal-and-replace legislation that failed to receive Congressional approval earlier this year focused heavily on the Medicaid market and would likely have significantly altered the way Medicaid is funded. Contact: Mark Rouck Senior Director, Insurance +1 312 368 2085 Fitch Ratings, Inc. 70 West Madison Street Chicago, IL 60602 Justin Patrie, CFA Senior Analyst, Fitch Wire +1 646 582 4964 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com; Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. 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Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. 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