An upcoming U.S. Supreme Court ruling that could eliminate
subsidies for certain Americans who bought private health
insurance coverage under the Affordable Care Act, commonly known
as Obamacare, could deprive insurers of up to 10 million
customers and roll back the gains these companies' stocks have
enjoyed, according to two reports issued this week.
Though the reports don't specifically discuss health care
stocks, they indicate a potential loss of customers from all
health plans with products on the exchanges, and that means a
potential loss of business for these publicly traded firms --
something investors should definitely keep in mind.
A new analysis from the RAND Corp.
said eliminating government subsidies for "low- and
moderate-income people" from 34 states who bought coverage
through the federal exchange would "reduce enrollment in the
individual market by more than 9.6 million."
A separate issue brief
from the Urban Institute determined an additional 8.2 million
people could be uninsured in 2016 if the high court rules
againstfederal subsidies and tax credits in this case.
Such scenarios are possible should the Supreme Court rule this
spring that the Affordable Care Act does not allow subsidies to
help Americans pay for health insurance in those states that did
not set up their own online marketplaces.
The case to be heard by the court is King v. Burwell. It
essentially comes down to whether subsidies are illegal because
wording in the Affordable Care Act specifically rules out
subsidies in states that don't establish their own exchanges. A
few words in the law say an exchange should be established by the
state, though the legislation's supporters and the insurance
industry note that the law also has provisions for the federal
government to run the exchange if the states don't.
The high court surprised some observers by even agreeing to
hear the case, which is likely to occur as early as next
month, with a ruling expected before the end of June.
"The disruption would cause significant instability and
threaten the viability of the individual health insurance market
in the states involved," RAND senior economist Christine Eibner,
who co-authored the organization's report, said in a prepared
Such disruption would roil the individual insurance businesses
of companies such as
. Particularly affected could beBlue Cross and Blue Shield plans
such as those operated by
. Blue Cross plans have long dominated the individual health
insurance market across the country, and they have placed a big
bet on business tied to the health law.
If the court strikes down thesubsidies, insurance enrollment
under the ACA in the individual market would fall to 4.1 million
from 13.7 million, RAND said. It's unclear how that would impact
insurance companies annually.
RAND pointed out that losing subsidies would result in
individuals' premiums jumping, which could cause some
affected customers to eventually stop making payments to
insurers. The difference in price is not small; premium costs for
a 40 year-old smoker would jump to $5,060 from $3,450 in a
silver-level insurance plan under a scenario outlined by
The Urban Institute, said "nongroup coverage" in states with
federally facilitated marketplaces would jump 35%, or $1,460 per
"The Supreme Court's decision will have far-reaching effects
on the number of uninsured Americans and premiums," Andrew Hyman,
senior program officer at the Robert Wood Johnson Foundation, a
funder of the Urban Institute and the study, said in a statement
accompanying the Urban Institute issue brief. "The Court's
decision could significantly undermine the stability of insurance
markets in dozens of states, which will impact those who are
covered as well as the remaining uninsured."
While many insurers have told Wall Street analysts on recent
earnings calls that the individual business from the health law
was breakeven through the first year of coverage, a potential
exodus of customers who no longer have financial help to pay
their premiums could turn a wash into major losses. That would
not be good for stocks that have been on a roll largely from new
business from the health law.
SCOTUS Ruling Against Obamacare Subsidies Could
Cost Insurers 10 Million Customers
originally appeared on Fool.com.
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