The sheer size of the country's largest health plans positions them well for a "stable" business outlook, according to analysts at Fitch Ratings.
The report digs into the outlook for four companies: UnitedHealth, Cigna, Elevance Health and Humana. Each of these insurers benefits from strong market share across multiple metropolitan areas, the analysts said. And while none owns a majority of the market share in the U.S., their penetration in individual regions can be very high.
This gives them very strong positioning when they come to the negotiating table with providers, according to the report.
"This provides these companies with significant negotiating leverage with local providers, which often have very strong market shares as well," the analysts wrote. "These characteristics typically result in competitive provider networks for large insurers."
In addition, the analysts said that the large size of these companies enables them to weather costs that would be quite painful to smaller firms. The large member base allows these plans to spread morbidity risk across the group and generates efficiencies for expenses.
Plus, large payers have more diverse distribution and greater brand recognition, and they have greater access to data and technology capabilities, the analysts said.
"The geographic diversity of their membership reduces the risk of exposure to regional economic downturns, regulatory issues, regional outbreaks of infectious disease, and morbidity related to natural or man-made disasters," the report said.
In the report, Fitch's analysts ranked UnitedHealth the highest in financial performance, with Cigna and Elevance Health on par behind them. Humana was ranked last among the four. As by far the most profitable company in the report, UnitedHealth showed the largest growth in earnings before interest, taxes, depreciation and amortization (EBITDA) margin, the analysts said.
The analysts said that large insurers have broad regional market share but also offer a diverse array of plans across different types of coverage, from the employer sector to Medicare to Medicaid. They also provide other supplemental coverage, such as dental and vision, and have growing businesses in other sectors, such as outpatient care.
All four companies have invested heavily in building out their non-insurance businesses, and view those segments as growth engines for the broader enterprise.
"Operating performance among group members is considered very stable and has become significantly more so over the past two decades," the analysts wrote. "This stable operating performance and resulting cash flow has also supported the elevated financial leverage among these companies in recent years."