A rating agency says it has downgraded a Midwestern health carrier partly because of concerns about the possible effects of health reform.
Moody's Investors Service, New York, has lowered the senior debt rating of Health Care Service Corp., Chicago, to A2, from A1, and the company's insurance financial strength rating to A1, from Aa3.
Health Care Service, a mutual, is the parent of Blue Cross and Blue Shield plans in Illinois, Texas and other states.
"The rating action primarily reflects the recent sharp decline in HCSC's earnings margins, which is expected to be managed at a reduced–relative to historical–level for the foreseeable future, as well as uncertainty in the healthcare insurance sector as a result of the economic downturn and the impact of healthcare reform," Moody's says in an announcement discussing the rating actions.
The cost of grappling with the H1N1 flu had some effect on Health Care Service's financial results during the latter part of 2009, and an increase in the number of consumers enrolled in COBRA health benefits continuation programs also contributed to an increase in the medical loss ratio, Moody's says.
Layoffs have depressed enrollment levels in Health Care Service's commercial health plans, Moody's says.
Moody's expects Health Care Service to produce after-tax profit margins in the 2% to 3% range in 2010, and to maintain its current strong risk-based capital level, Moody's says.
But Moody's "anticipates that HCSC, along with other healthcare insurers, will need to devote considerable resources in addressing the impact of healthcare reform, should a bill be passed this year," the rating agency says.
Health Care Service has issued a statement saying that the company "remains one of the strongest health insurers financially and maintains the highest debt rating in the industry."
"Like other health insurers, we have been affected by the economic climate and increased utilization," the company says. "Because of careful and prudent management, HCSC maintains a strong balance sheet and continues to meet all of its policyholder obligations."
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