Fitch Worries About Medicare Plan Market Price Wars

An analyst at Fitch Ratings fears that health insurers may be loving the Medicare Advantage plan market too much.

Bradley Ellis, a senior director and health insurance ratings analyst at Fitch Ratings, talked about health insurers’ hunger for Medicare plan business Tuesday in on online conference the firm held to go over its thoughts about how the insurance sector might look this year.

Humana — a Louisville, Kentucky-based health insurance giant — warned Thursday, in a notice filed with the SEC. that it might end 2022 with just 150,000 to 200,000 more Medicare Advantage plan enrollees. Earlier, the company had estimated it might add 325,000 to 375,000 Medicare Advantage plan enrollees.

“In addition, the company continues to expect group Medicare Advantage membership to be generally flat for 2022, as it does not anticipate any large accounts will be gained or lost as it continues to maintain pricing discipline in a highly competitive market,” Humana said.

Investors reacted by pushing the company’s share price to less than $400, from more than $450 before the notice came out.

Ellis said the remark about the need for “pricing discipline in a highly competitive market” is much more of a concern than the change in the enrollment project.

The Medicare plan market “is where a lot of companies are moving for growth,” Ellis said. “It’s very competitive.”

The Humana warning raises questions about whether all players are pricing rationally, and about whether competition may be so fierce that profit margins are suffering, Ellis said.

“We’re watching that very closely,” Ellis said.

Fitch analysts also suggested in the conference that:

• A modest increase in interest rates could provide some help to life and annuity issuers.
• Tough new accounting rules, and declines in earnings on stocks and other investments to typical levels, may cause headaches for life and annuity issuers.
• The current brisk level of deal-making between life and annuity issuers and investment managers seems likely to continue.
• Life and annuity issuers’ efforts to increase yields by locking money into long-term investments, which are hard to convert into quick cash, will continue.

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Fitch Ratings’ headquarters in London. (Photo: Simon Dawson/Bloomberg)