Obamacare Case Could Hurt Hospital Credits

WASHINGTON - Hospital credits could be hurt if the Supreme Court strikes down federal health insurance subsidies established by the Affordable Care Act, Moody's Investors Service said Tuesday.

The nation's highest court will hear arguments Wednesday in King v. Burwell, a case challenging the constitutionality of federal subsidies in the 34 states that opted to allow the U.S. government to operate their healthcare exchanges under the ACA rather than create their own. While a ruling in favor of the government would have no major effect, a ruling ending the subsidies would be a blow to hospital debt, Moody's analysts said in a report.

"Many people will find insurance unaffordable without the subsidies, which cover 72% of monthly premiums, on average," Moody's said. "This would be credit negative for hospitals due to higher uncompensated care costs as more individuals give up insurance coverage."

Under that scenario, millions of people could drop insurance coverage, Moody's predicted. The hospitals hardest hit would be those in the 22 states that did not take the ACA incentive to expand Medicaid coverage eligibility to all non-elderly individuals in families with incomes below 133 percent of the poverty line. Most of those states are in the south and on the plains.

"Hospitals in these states will be most hurt by a ruling against the government because the ACA mandates cuts to Medicare payments," Moody's explained. "These cuts were based on the idea that more people will gain insurance coverage through Medicaid or the exchanges."

Because those states did not offer increased Medicaid coverage, Moody's said, hospitals there would be more exposed to out-of-pocket patients. A ruling against the government would not affect Medicaid.

The Supreme Court has ruled on the 2010 healthcare reform law before, but not on this specific issue. In 2012 the court narrowly upheld the constitutionality of a key provision of the law when it ruled 5-4 that the government can lawfully "tax" citizens who do not purchase health insurance. Moody's said that if the court does strike down the subsidies, legislative action to restore them seems a long shot.

"In the event of a ruling against the government, Congress could pass legislation allowing people to continue receiving federal subsidies on the federal exchange," Moody's said. "Given the politically divided atmosphere in Washington, we do not see this as a likely solution. However, we acknowledge that this is a possibility and some members of Congress have suggested a compromise may be possible where Congress allows subsidies on the federal exchange in exchange for some structural changes to the ACA."

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