The new federal Patient Protection and Affordable Care Act (PPACA) could have a harmful impact on small U.S. health insurers by forcing many to withdraw from the market, be acquired by larger insurers or fail altogether, according to a new study.
Weiss Ratings conducted a study of 585 U.S. health insurers and gave 95 of them a rating of “weak” or lower, which may put them at risk of future financial difficulties caused by higher medical costs, a weaker economy or other pressures, the company said.
Martin D. Weiss, president of Weiss Ratings, said in a statement that provisions in PPACA, such as the removal of certain reimbursement limits and mandated coverage for pre-existing conditions, will force health insurers to spend more on medical care.
“Most large health insurers will be able to handle it. But we are concerned that weaker, less profitable insurers will be forced out of the market, reducing competition and ultimately leading to fewer choices and higher premiums for consumers,” he said.
Weiss Ratings also gave 186 insurers a “fair” rating and said that these could also have difficulty absorbing the additional costs mandated by PPACA.
The study notes that ratings are based on a measure of each company’s ability to absorb possible future financial adversity based on its capital, earnings, and other factors.
Weiss says that large insurers with abundant capital and solid profits are likely to absorb the higher expenses from PPACA and could even expand their market share by acquiring the weaker companies.
According to the study, the top five largest U.S. health insurers with assets of $2 billion or more are Kaiser Foundation Health Plan Inc. Oakland, Calif.; Health Care Service Corp., Chicago; Blue Cross Blue Shield of Michigan, Detroit; Highmark Inc., Pittsburgh; and California Physicians’ Service, known as California Blue Shield, San Francisco.
The nation’s 16 largest health insurers control 45.7% of the industry’s assets, Weiss says.
Weiss noted that 174 health insurers have already reported losses last year.