Insurers are weathering the coronavirus pandemic.
While hospitals have taken a financial hit from COVID-19, the major health insurers, in reporting their first-quarter earnings, show minimal impact.
In fact, based on a mild scenario, insurers could see a benefit to earnings in 2020 as medical services decline, according to Moody's Investors Service.
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In a medium scenario, the industry remains solidly profitable before considering any impact of a recession.
U.S. health insurers will remain profitable under the most likely scenarios, despite the highly uncertain severity and duration from the coronavirus pandemic and its financial impact, Moody's said in the recent report.
WHY THIS MATTERS
Major insurers have been reporting their first-quarter earnings.
UnitedHealth Group, the parent company of insurer UnitedHealthcare, and the first to report Q1 in mid-April, made more money than forecasted.
"They had an extraordinarily successful first three months of the year – blew Wall Street's estimates out of the water," said former Cigna executive Wendell Potter, who is now an advocate for health insurance reform.
UnitedHealth Group made over $5 billion, he said.
Anthem and Humana released their corporate earnings on April 29; Cigna on April 30; and CVS Health, which owns Aetna, will have its earnings call on May 6.
Cigna's first-quarter results also exceeded Wall Street expectations.
The bottom line was helped by the cancellation or postponement in March of elective procedures, Potter said. A big unknown is the cost of treatment for COVID-19, with most major insurers paying for tests and treatment.
Insurers won't know their financial exposure until the end of the second quarter.
For now, Potter said, "They're going to be the big winners."
John Rex, CFO of UnitedHealth Group said during the earnings call that, given the timing of the COVID-19 outbreak and its progression, the first-quarter financial impact was limited.
"As you know, incidence rates in the U.S. only started moving meaningfully in mid-March," Rex said. "And elective care trends did not begin to be meaningfully impacted until later in the month."
Lack of treatment can aggravate health status leading to more intensive care needs, Rex said.
CEO David Wichmann said two-thirds of business and revenues are in risk-based contracts, so that elective and chronic-disease-management deferrals "work both ways."
THE LARGER TREND
Lower revenues, tighter cash flows and declining commercial enrollments could materialize amid an emerging recession, Moody's said.
Regional commercial-focused insurers are most vulnerable to earnings risk in medium or severe scenarios more so than national, diversified companies. However, high levels of excess capital partially offset this risk. And, these companies also maintain substantial levels of cash and short-term investments in their operating companies.
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