Fitch: ACA Subsidy Upheld, Positive for US Hospitals, Insurers

NEW YORK & CHICAGO--(BUSINESS WIRE)-- Today's Supreme Court ruling on King v. Burwell removes a principal legal challenge to the Affordable Care Act (ACA). While this outcome has positive implications for the credit profiles of hospitals and health insurers, it will not result in any rating changes in the near term. The ruling affirms the legality of the IRS regulation allowing premium subsidies for enrollees in plans offered on the public health insurance exchanges in the 37 states with a federally run insurance exchange.

Hospitals have clearly benefited from the expansion of health insurance coverage under the ACA, as reflected and most apparent in lower levels of uncompensated care, which has been a perennial financial headwind for the industry.

While legal challenges, as well as political opposition, to the ACA remain, the court's decision underscores the uphill battle plaintiffs will face in the remaining challenges, including the employer mandate, contraception coverage and others. Despite the positive ramifications of the decision, it remains difficult to predict the long-term magnitude and durability of the ACA's benefits to the hospital industry. We continue to believe that insurance coverage expansions are a critical part of the Act, which helps mitigate the increasing reimbursement reductions and payment reforms being implemented by the Centers for Medicare and Medicaid Services.

The tax credits, which are available to consumers that meet certain income thresholds, are also a key component of the ACA's efforts to improve health insurance affordability and make it easier for consumers to comply with the ACA's mandate that individuals purchase health insurance.

Upholding the subsidies also means that the aggregate risk profiles of various state exchanges will remain intact and avoid the deterioration that Fitch had expected if the subsidies were voided and comparatively healthy consumers dropped the coverage. Further, the decision promotes health insurers' opportunities to recoup the operational and financial costs they have incurred developing exchange-based capabilities.

Fitch estimates that, in 2014, the year in which the ACA's insurance exchanges began enrolling consumers, enrollment in the 33 states reliant on the federal exchange grew 19.8% compared with the prior year. In contrast, from 2010 through 2013, enrollment in these 33 states grew at an average rate of 4.2%. Based on 2014 enrollment, Florida, New Jersey, Ohio, Pennsylvania and Texas are the five largest states that are reliant on the federal exchange.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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Source: Fitch Ratings

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