Weiss Ratings: Health Care Reform to Squeeze Smaller Health Insurers

But Kaiser, Health Care Service Corp, and Other Giants Could Benefit;
Market Consolidation and Reduced Consumer Choices Likely

JUPITER, Florida (July 22, 2010) — The new Patient Protection and Affordable Care Act is expected to squeeze the profits and finances of the nation’s smaller health insurers, forcing many to withdraw from the market, be acquired, or fail. However, most of the nation’s largest insurers have the capital and efficiencies needed to handle the expanded coverage and buy out the smaller companies, according to a new study by Weiss Ratings, the nation’s only provider of independent insurance company ratings.

“Sweeping changes mandated by health care reform, such as the removal of certain limits and mandated coverage for pre-existing conditions, will inevitably force health insurers to spend more on medical care,” commented Martin D. Weiss, president of Weiss Ratings. “Most large health insurers will be able to handle it. But we are concerned that weaker, less profitable insurers will be forced out of the market, reducing competition and ultimately leading to fewer choices and higher premiums for consumers.”

The Weiss Ratings study covers 585 of the nation’s health insurers, including 353 companies that already meet the mandated requirement going into effect next year to pay out at least 85% of their premium dollars in medical expenses.

Among the 585 companies, 95, or 16.2%, received a Weiss Rating of D+ (weak) or lower, putting them at risk of future financial difficulties caused by higher medical costs, a weaker economy or other pressures. In addition, another 186, or 31.8% of the industry, are rated C+, C or C- (fair), many of which could also have some difficulty absorbing the additional costs mandated by health care reform.

The table below shows the nation’s weak health insurers with $100 million or more in assets, according to their Weiss ratings — a measure of each company’s ability to absorb possible future financial adversity based on its capital, earnings and other factors.

Weakest U.S. Health Insurers
(with assets of $100 million or more; 12/31/09 data)
Institution
State
Weiss Financial
Strength
Rating
Assets
($mil)
Capital & Surplus
($mil)
MMM Healthcare Inc PR
D
301.2
53.4
Boston Medical Center Health Plan MA
D+
272.0
139.6
Heritage Provider Network Inc CA
D
242.0
70.8
Vista Healthplan Inc FL
D+
151.2
33.9
HealthEase of Florida Inc FL
D+
145.5
26.3
MVP Health Insurance Co NY
E-
143.8
56.2
Evercare of New Mexico Inc NM
E
121.6
22.7
PMC Medicare Choice Inc PR
D
113.7
26.0
Neighborhood Health Plan of RI RI
D-
108.3
18.8
Scale: A=Excellent, B=Good, C=Fair, D=Weak, E=Very Weak. Plus sign=top third of grade; minus sign=bottom third

 

Weiss added: “Smaller insurers with less capital and fewer efficiencies of scale are more likely to suffer difficulties or even go out of business due to health care reform. Already, even before any additional expenses mandated by health care reform, 174 health insurers reported losses last year. In contrast, the largest, most efficient insurers with abundant capital and solid profits are not only in a position to absorb the higher expenses mandated by reform but could also expand their market share by buying up the weaker companies.”

The table below reflects the nation’s 16 largest health insurers — all with assets of $2 billion or more.

Largest U.S. Health Insurers
(with assets of $2 billion or more; 12/31/09 data)
Institution
State
Weiss Financial Strength Rating
Assets
($mil)
Capital & Surplus
($mil)
Kaiser Foundation Health Plan Inc CA
A-
37,798.0
11,837.6
Health Care Service Corp, a Mut Legal Reserve Co IL
A+
11,377.9
6,692.4
Blue Cross Blue Shield of Michigan MI
B+
6,182.5
2,562.2
Highmark Inc PA
B
5,361.5
3,394.8
California Physicians’ Service CA
A
4,977.9
3,189.7
Blue Cross and Blue Shield of Florida FL
B+
4,743.5
2,091.9
Blue Cross of California CA
A+
3,693.0
1,377.3
Horizon Healthcare Services Inc NJ
B
3,100.4
1,560.0
Community Insurance Co OH
A-
2,919.4
626.5
Empire HealthChoice Assurance Inc NY
A-
2,838.6
1,363.2
Blue Cross Blue Shield of NC NC
A+
2,807.6
1,423.8
Health Net of California Inc CA
B+
2,354.6
1,283.6
Blue Cross Blue Shield of SC SC
A-
2,328.1
1,500.1
Excellus Health Plan Inc NY
A+
2,200.4
965.1
Anthem Blue Cross Life and Health Ins Co CA
B-
2,181.4
813.8
Anthem Insurance Companies Inc IN
B
2,158.3
710.9
Scale: A=Excellent, B=Good, C=Fair, D=Weak, E=Very Weak. Plus sign=top third of grade; minus sign=bottom third

 

Among the nation’s 16 largest health insurers, controlling 45.7% of the industry’s assets, the nation’s largest health insurer, Kaiser Foundation Health Plan Inc. with $37.8 billion in assets merited a Weiss rating of A- (excellent), while the second largest, Health Care Service Corp., with $11.4 billion in assets, was rated A+. Also receiving excellent grades were Blue Cross Blue Shield of NC (A+), Blue Cross Blue Shield of SC (A-), Blue Cross of California (A+), California Physicians’ Service (A), Community Insurance Co (A-) plus two New York companies — Empire HealthChoice Assurance (A-) and Excellus Health Plan (A+). None of the 16 largest were in the weak (D+ or lower) or fair (C, C+, C-) category.

To help consumers, Weiss Ratings has just released to the public its lists of the 118 strongest and 100 weakest health insurance companies. Consumers can immediately receive both lists at no charge by providing their email address at www.weissratings.com/healthlists.

About Weiss Ratings

Weiss Ratings accepts no payments for its ratings from rated institutions. It is among the nation’s leading providers of independent ratings on 8,000 U.S. banks and S&Ls and the only provider of independent ratings on the nation’s 4,200 insurance companies.

Earlier Weiss studies on the health insurance industry were the primary basis for reports to Congress by the Government Accountability Office (GAO) and by Senator Edward Kennedy. Weiss outperformed Standard and Poor’s, Moody’s, A.M. Best and Duff & Phelps (now Fitch) in warning of future life and health insurance company failures according to a landmark study by the U.S. Government Accountability Office (GAO), while also outperforming its competitors in identifying the strongest insurers, according to its follow-up study using the GAO’s research methodology. According to a leading consumer publication’s May 2009 study of life insurance ratings by Fitch, Moody’s, S&P, A.M Best and Weiss Ratings, Weiss Ratings (formerly TheStreet.com Ratings) “was the toughest grader with independent and objective ratings.”

Thanks to its strong track record and independence, The New York Times wrote that Weiss was “the first to see the dangers and say so unambiguously,” Barron’s wrote that Weiss is “the leader in identifying vulnerable companies” and Esquire concluded that Weiss Ratings is “the one company [that] ... provides financial grades free of any conflicts of interest.”

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Note to Editors: This is the first of two releases scheduled to cover the health insurance industry. A second release will study insurers’ profitability and profit margins. State-specific lists of health insurers’ ratings are available upon request.