Headwinds from an increase in the use of Medicaid are unlikely to have a long-term negative effect on health insurers, according to a new brief from Fitch Ratings. Insurers may experience short-term margin pressure, however.
“Regardless of the core drivers of the higher utilization rates, we expect the resulting Medicaid margin pressure to be relatively short-lived, as rate setting discussions with states should incorporate the higher levels of acuity,” the Fitch analysts wrote. “For most companies, diversification, particularly in commercial group and individual exchange market, will also continue to be beneficial in helping to offset the temporary margin pressure in Medicaid.”
In April 2023, states began the process of determining eligibility for Medicaid coverage for the first time since the early days of the COVID-19 pandemic in 2020, which prevented agencies from removing individuals from their Medicaid rolls during the public emergency.
In April 2024, McKnight’s Senior Living reported that more than 19.2 million low-income individuals had lost health insurance in the past year due to Medicaid unwinding. And most (70%) of those disenrolled lost coverage due to procedural issues, including missing paperwork or administrative inefficiencies, rather than actual ineligibility.
“Several senior executives at companies with significant Medicaid operations have recently commented on higher than expected utilization rates among remaining Medicaid beneficiaries. Uncertainty around rate adequacy can occur with a rapid change in composition of the risk pool, which appears to have been a consequence of the Medicaid redetermination process,” according to Fitch. “The morbidity of the risk pool has deteriorated, but the precise causes of higher acuity within remaining Medicaid beneficiaries is currently unclear. However, we believe that one potential factor is adverse selection driven, in part, by the high level of disenrollment for procedural reasons.”
