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Influenza cases and
hospitalizations — which dipped in 2020 and 2021 as the public took steps
like masking and staying home to slow transmission of COVID-19 — are back
this year with a vengeance. But while one equities analyst recently warned
investors that such “heightened flu activity” could impact financial metrics
for payers that haven’t priced for such a scenario, a credit rating analyst
tells AIS Health that insurers aren’t likely to take a major hit.
Higher flu activity can
inflate payer MLRs
- According to
the weekly U.S. influenza surveillance report issued by the Centers
for Disease Control and Prevention (CDC) on Nov. 10, “early increases in
seasonal influenza activity continue nationwide.” The cumulative flu
hospitalization rate is now “higher than the rate observed in week 44
during every previous season since 2010-2011,” the CDC said.
- Put another
way, “with this week’s accelerated growth, trends are now running
250-300 [basis points] higher than pre-pandemic levels observed for week
44,” Citi analyst Jason Cassorla advised investors in a Nov. 14 research
note.
- “Heightened flu
activity within a given season typically results in higher healthcare
utilization, which is generally favorable for hospitals and subsequently
puts pressure on MLRs [medical loss ratios] for payors that have not
priced for this increased activity,” Cassorla pointed out.
But payers can weather
this year’s flu
- Yet Dean Ungar,
vice president and senior credit officer at Moody’s Investors Service,
says health insurers are well-positioned to handle the financial impact
of a severe flu season.
- “On the margins
it may impact earnings a little bit, but the flu is generally not a
huge, huge driver of medical costs,” Ungar tells AIS Health.
- Based on the
performance of seven publicly traded insurers, he says, the sector is
also having a good year. The reasons for that strong performance were
largely as anticipated, Moody’s said, citing lower COVID costs, better
performance in the individual market, better commercial trends and
continued growth in Medicare Advantage.
- High medical
costs associated with a severe season might affect insurers’ 11.7%
year-to-date EBITDA increase “on the margins,” Ungar says, adding,
“let’s say 12% could be 10%.” But from a credit perspective, he
emphasizes that the impact will be minimal.
- Generally
speaking, Ungar adds, the primary forces pushing up health care costs
include chronic conditions such as diabetes and chronic obstructive
pulmonary disease, as well as the fact that the U.S. population
continues to skew older. “Episodic” factors like severe flu seasons do
have an impact, but it doesn’t make or break companies’
credit-worthiness, he adds.
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