It may not be as exciting as NBA finals action, but there are probably bookies somewhere taking bets on how the US Supreme Court ruling on the constitutionality of the Patient Protection and Affordable Care Act of 2010 (PPACA) will affect all of our finances. Of particular interest, of course, is how the whole thing will affect health insurer finances.
Analysts at Moody’s Investors Service have been working on figuring out how it will go as we all await the ruling, expected to be handed down in June or early July. They are resisting the temptation to make any solid predictions, remarking, “The bottom line is that it is difficult to assess the impact to specific companies until we have a clearer view of the regulatory landscape after the Supreme Court announces its decision”. The analysts have prepared a commentary on the potential implications of the decision to help investors figure out what might happen to the credit ratings of health insurers in the aftermath.
There are a bunch of moving parts, here. The government is requiring health insurers to sell coverage on a guaranteed-issue basis starting in 2014. The companies can take into account the age of an applicant when pricing health coverage, but not their health status. This is a big deal, a major change in philosophy and policy. Remember that insurers do not want to buy claims, as it were, or cover those who will cost far, far more than they could even pay in – this is not good business, obviously. In order to keep these requirements from overwhelming (and bankrupting) carriers with very sick and expensive-to-insure policyholders, Congress included the requirement that most individuals purchase coverage and most midsize and large companies offer group coverage, or else pay penalties.
Critics of the PPACA (and there are many) argue that the ‘individual coverage ownership mandate’ is flat-out unconstitutional. They maintain that PPACA will fall, utterly and completely, if the individual mandate falls, plain and simple. There is no severability clause built into the legislation, which would keep the rest of the act intact even in one part or another were taken out.
The analysts at Moody’s have drawn up three basic scenarios that reflect the most likely outcome:
- The court will uphold all of PPACA.
- The court will find the individual mandate to be unconstitutional and strikes most or all of the PPACA provisions affecting health insurance carriers.
- The court finds the individual mandate to be unconstitutional but severable from the rest of the law, upholding all other provisions of PPACA.
Of course, as they observe, no matter how the ruling comes down, there will be more questions than answers, and the whole thing depends on how the elections in November go anyway. Here’s some of what they’re thinking:
- A Republican in the White House will find all sorts of ways to delay and water down any implementation of the legislation.
- If the ruling upholds all of the PPACA, or all but the individual mandate portion, health insurers will suffer. The new taxes, the new coverage requirements and the new limits on their profitability will render any benefit they might get from enforcing the coverage mandates meaningless.
- The penalties imposed in connection with the employer and individual mandates will be too weak to drive anyone to maintain health coverage. Rather than buying coverage to avoid penalties, especially in the face of endlessly rising premiums, many will simply pay the penalties and go without coverage.
- Perhaps the insurers will work to hold the cost of coverage down – which is already happening in some states – and will look to diversify their product offerings, no matter what happens with PPACA.
- If all of PPACA is taken down, many insurers will lose the new business they have been writing since some of the PPACA provisions have already taken effect. They will also lose the PPACA Medicaid expansion provisions.
- If PPACA goes away on the federal level, a number of state health reform laws are likely to come along, laws that may be complicated and expensive for insurers to cope with.
Time will tell. No matter what happens, it won’t be dull!
Special thanks to Life-Health Pro, as reported by Allison Bell.