Supreme Court Opinion To Have No Effect on Health Insurers: S&P

June 25, 2015

Today’s Supreme Court opinion upholding current tax subsidies under the Affordable Care Act (ACA) will not have any impact on rated U.S. not-for-profit and for-profit health insurance firms since it continues the current operating environment, according to a leading rating agency.

“Today’s ruling is a positive for the U.S. health insurance industry, especially for insurers that have invested heavily to compete on the insurance exchanges. This will help resolve an uncertainty that has been a pain point not just for insurers, but for the ACA as a whole,” Standard & Poor’s Ratings Services said in a statement.

Standard & Poor’s Ratings Services added that the subsidized exchange business is proving to be a benefit to U.S. health care providers, and that benefit will likely continue.

The Supreme Court in its ruling, King v. Burwell, validated the legality of federal subsidies under the ACA in states where the state did not set up its own insurance exchange, but rather relied on the federal exchange.

The loss of the subsidies could have jeopardized the affordability of coverage for as many as 6.4 million lower-income Americans in 34 states who purchase private health insurance through the federally run exchanges, according to the Centers for Medicare and Medicaid Services.

“While some of the conditions that gave rise to the ACA in the first place–medical costs that are too expensive; dwindling levels of employer sponsored care; huge number of underinsured/uninsured with limited access points–still burden the health care delivery system and remain potent concerns for the United States, the ACA and the insurance exchanges are helping to alleviate some of these concerns,” said S&P in its statement following the court decision.

As the ruling is an affirmation of the status quo, S&P said it does not expect it to have any credit implications for the state sector.

“It’s possible that had the court ruled in favor of the plaintiffs, some states would have been motivated to attempt to establish their own state run health insurance exchanges. Alternatively, policy advocates in the states without state-run exchanges may have urged the legislatures in those states to backfill the withdrawal of federal subsidies. The court’s ruling frees these states from having to consider undertaking these administratively complex and costly policy initiatives,” said S&P.

While the political wrangling over the ACA is likely not over, today’s ruling maintains the ACA in its current form. according to the analysts at S&P. “The ACA is here to stay, including its goals of greater health care access for millions of Americans; higher quality care for all; and lower costs,” said S&P.

S&P said the ruling reduces the uncertainty around the ACA, which is good for the industry. “Uncertainly is generally bad for credit, and makes it harder for insurers to price appropriately. The resolution of this issue does somewhat reduce the previously elevated industry risk and also puts the ACA on a stronger footing,” S&P said.

Source: Standard & Poor’s Ratings Services

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