In this A.M.BestTV episode, A.M. Best Managing Senior Financial Analyst Doniella Pliss and Financial Analyst Craig Draghi discuss why U.S. health insurers have nearly doubled their borrowing levels since 2011. Click on http://www.ambest.com/v.asp?v=healthborrowing616 to view the entire program.

With the enactment of the Patient Protection and Affordable Care Act (ACA) there has been a sharp increase in borrowing among U.S. health carriers. This trend is explored in a recent Best Special Report, titled, “Health Insurers Increase Borrowing Due to the Patient Protection and Affordable Care Act.” Go to http://www3.ambest.com/bestweek/purchase.asp?record_code=249255 to view the entire report.

“Traditional health insurance cash flow models include receiving full premium payment every month prior to payment of any claims. This is not the case with exchange products. In the first few years of the exchanges, there was a very heavy reliance on risk adjustment, reinsurance and risk corridors, otherwise known as the 3Rs,” said Pliss.

“In addition, there was a significant fluctuation in timing of payment of direct premium subsidies. Therefore, health insurers were faced with difficulty to pay the claims because their liquidity was under pressure. To alleviate this pressure, they turned to borrowing,” continued Pliss.

Draghi said A.M. Best has not seen any significant rating pressures due to companies’ borrowing strategies; however, he said that “heavy reliance on the use of borrowed funds could put pressure on ratings,” if it were to reduce financial flexibility or slow growth of capital and surplus. “That being said, the use of borrowed funds is seen (by financial institutions) as favorable, as many of these top borrowing companies are very big, highly capitalized and highly rated,” said Draghi.

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A.M. BestLee McDonald, +1 908 439 2200, ext. 5561Group Vice President, Publication and News Serviceslee.mcdonald@ambest.com