A.M. BestTV: U.S. Health Insurers Ratchet Up Debt in Wake of the Patient Protection and Affordable Care Act
June 29 2016 - 2:05PM
Business Wire
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