If the Supreme Court rules that the law only allows tax credits through state-run exchanges, millions of Americans now receiving the subsidies probably would drop their coverage because they would find it unaffordable—a scenario that could disrupt the new individual market and drive up premiums as healthier people exited the pool and sicker people stayed in.
Cigna and Humana have lost money on their exchange plans so far this year, though they expect to break even in 2015. Many analysts have predicted sustainable profit margins won't occur until 2016 at the earliest.
But investor-owned insurers still have major investments in the exchanges, Wall Street observers agree. The big eight are expected to collect $7.6 billion in revenue from enrollees on federally run exchanges in 2015, according to Gupte's latest research.
On the other hand, the disappearance of federal subsidies likely would damage the finances of for-profit hospital companies, whose share of uncompensated care would rise. HCA, Tenet Healthcare Corp., Community Health Systems and other for-profit hospital chains operate many facilities in states whose Republican leaders have strongly resisted establishing their own exchange or expanding Medicaid to lower-income adults. HCA, for example, has 78% of its acute-care beds in states that haven't cooperated with the law, according to analysts at J.P. Morgan Securities.
Josh Weisbrod, a partner at Bain & Co., said there are two schools of thought among health insurers if the subsidies are thrown out. The first is they simply move forward and lose many paying customers along the way—a scenario some payers are planning for. But “there may not be all that much they can do” until the Supreme Court rules, he said.
The second school of thought is that the Obama administration, perhaps with congressional support, will find some stopgap measure to prevent Americans from immediately losing their tax credits and coverage. “Washington will not want those members who are getting subsidies today knocking on their doors wondering where their subsidies went because of a Supreme Court ruling,” Weisbrod said.
Although a loss of tax credits would not greatly shake health insurers' finances, analysts mostly agreed on what would happen to the general health insurance environment. “It would be haywire if the court invalidates federal subsidies,” said Steve Halper, a managed-care analyst at FBR Capital Markets & Co.
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