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Debt loads turn ratings agency negative on health insurer mergers

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Credit ratings agencies remain wary of the financial benefits of a wave of U.S. health insurer mergers announced this year.

Anticipating the heavy debt several health insurers will assume as they close planned mergers next year, Fitch Ratings Inc. downgraded its outlook on the U.S. health insurance industry to negative from stable.

The downgrade reflects increases in financial leverage and declines in interest coverage that could result from four large health insurer acquisitions announced this year if they are approved, according to a report released Wednesday by Fitch.

Integration issues could also dampen future earnings, while losses from less healthy members enrolled in federal health exchange plans could weigh on profits, Fitch said in the report.

“The higher financial leverage and lower interest coverage that will result from these planned acquisitions outweigh the acquisitions' earnings and competitive benefits,” the report reads.

In total, the New York-based credit rating agency projects that the four major health insurer acquisitions proposed this year will lead to about $55 billion of debt issued on top of the $53 billion of outstanding debt the health insurers had as of June 30, according to Fitch.

Among the major proposed acquisitions in 2015 are those between UnitedHealth Group Inc. and Catamaran Corp; Centene Corp. and Health Net Inc.; Aetna Inc. and Humana Inc.; and Anthem Inc. and Cigna Corp., according to the report.

Additionally, Moody's Investors Service on Dec. 1 placed Aetna, Anthem and Centene's planned acquisitions on review for a downgrade, as the increase in financial leverage and integration risks outweigh any positives of the deals.