Publicly traded insurers may not feel too much financial pain in the short term if the U.S. Supreme Court strikes down Obamacare premium subsidies offered through the federal exchange, Wall Street analysts say.
But the loss of the subsidies would hammer the business plans of Blue Cross and Blue Shield plans and not-for-profit co-op plans. The Blues have captured large market shares in many states using the federal exchange.
The reason publicly traded insurers wouldn't be overly affected is that the exchange business represents a small portion of their overall profitability. In addition, plans offered on state-run exchanges in places such as California and New York would be unaffected, unless Congress rolled back the entire law following the ruling.
“The impact may not be as material as you think at first, but it's not necessarily a positive by any measure,” said Vishnu Lekraj, a Morningstar analyst.
Some insurers, such as Aetna, Cigna and Humana, are more dependent than others on the federal exchange, which could make the Supreme Court decision more consequential for them.
Ana Gupte, a managing director at Leerink Partners, said exchange plans are contributing less than 1.5% toward earnings-per-share growth this year for the big public insurers.
If the Supreme Court in the King v. Burwell case next year invalidates tax credits in at least 34 states using the federal exchange, millions of Americans now receiving the subsidies likely would drop their coverage, disrupting the insurance market and driving up premiums.
Cigna and Humana have lost money on their exchange plans 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.
Still, the big eight publicly traded insurers are expected to collect $7.6 billion in revenue from federal exchange enrollees in 2015, Gupte said.
Josh Weisbrod, a partner at Bain & Co., said if the subsidies are thrown out, some insurers plan to soldier on with the loss of customers.
“There may not be all that much they can do” until the court rules, he said. Others hope the Obama administration and Congress would find a way to let people keep their tax credits and coverage. “Washington will not want members who are getting subsidies today knocking on their doors wondering where their subsidies went,” he said.
Steve Halper, a managed-care analyst at FBR Capital Markets & Co., said the insurance market would go “haywire” if the court strikes down the subsidies.
