A consolidation movement could be developing among small health insurers in response to the demands of healthcare reform, a rating agency says.
Moody’s, New York, points to recent notifications that Blue Cross Blue Shield of Delaware, Wilmington, Del., signed an affiliation agreement with Highmark Inc., Pittsburgh, and that HealthSpring, Nashville, Tenn., agreed to acquire Bravo Health, Baltimore.
Both announcements cited the need for increased size to cut administrative costs and to work more efficiently in the new environment produced by healthcare reform, Moody’s notes.
Those moves are likely to have a positive or neutral impact on the credit ratings of companies involved, despite the increased debt, financing costs and risks historically taken on by companies involved with mergers, Moody’s says.
“Consolidation among small, similarly sized and product-focused companies will lead to market share improvement but with fewer integration risks,” says Steve Zaharuk, senior vice president of Moody’s, writing in its Weekly Credit Outlook. “Nevertheless, a significant increase in the amount of debt could still be negative to a company’s credit profile.”