DC Gridlock Could Lessen Chances For Health Care Reform, Fitch Says

A divided Congress due to a presumptive Republican-controlled Senate will translate into legislative gridlock, Fitch Ratings says, and that means the outcome of the 2020 election is neutral to health insurers’ credit profiles.

In a new report, Fitch says policies to expand health care coverage, lower prescription drug prices, end surprise billing, and fund Medicare and Medicaid could face legislative gridlock. If the Supreme Court rules that the Affordable Care Act is unconstitutional, and if President-Elect Joe Biden is able to work across party lines, an ACA strikedown could be resolved with new health care legislation.

Biden also could see bipartisan support on some aspects of his less controversial policy proposals, including ending surprise billing and limiting increases on prescription drug prices. However, the addition of a public insurance option and lowering Medicare’s age requirement may be less likely, given the COVID-19 pandemic’s effect on the government’s budget.

The Supreme Court heard oral arguments regarding the constitutionality of the ACA earlier this month. A decision on whether to strike down or uphold the law, while severing the individual mandate, is anticipated by June 2021. A striking down of the ACA would result in fewer insured patients and negatively affect hospital revenue, Fitch reports.

Uninsured Numbers Up

The percentage of uninsured Americans increased to 9.2% in 2019 from 8.6% in 2016, after a sharp decline from 15.6% in 2010, when the ACA was signed into law, Kaiser Family Foundation reported.

The reduction of uninsured patients who self-pay and an increase in insured patients due to the ACA had a positive effect on the financial profiles of most hospitals, Fitch said.

Fitch believes a gridlock election outcome is credit neutral to negative on hospitals, with a great deal riding on the court’s ACA decision and Biden’s ability to work across party lines.  If the Supreme Court decision results in a largely intact ACA, Biden’s plan to build upon and expand the law will be a challenge with a divided Congress.

A decision striking down the ACA might be resolved with new legislation.  For example, Congress could pass legislation removing the individual mandate from the ACA if the court determines this provision is both unconstitutional and inseverable from the rest of the law. This path is only possible with compromise and will be trickier in a gridlock scenario than it would have been with a Democrat sweep.

The implications under a gridlock scenario are credit neutral for health insurers, Fitch said. At issue is whether the ACA survives the latest Supreme Court review. A striking down of the ACA would be a modest positive, given the lifting of the ACA-related underwriting restrictions.

If the Supreme Court upholds the ACA, Fitch anticipates Biden and a Republican-controlled Senate could reach a compromise on some aspects of the law. Underwriting restrictions on pre-existing conditions may continue, while a public option to expand the ACA might be off the table.  A public government-run health insurance option may have the potential to lower health care costs but it would compete with private health insurance companies. This would be a significant adverse development for health insurers, and is something the industry fought hard against when the ACA was originally formulated.

However, if Democrats end up controlling the Senate and health care coverage is expanded, Fitch predicts that expanded coverage would be credit positive for not-for-profit hospitals due to increased revenue.

Under an ACA expansion, additional states may be encouraged to join the ACA health insurance exchanges, Medicaid might be further expanded and additional uninsured and underinsured Americans would be able to get some form of coverage. Providers’ payor mix would improve, which would strengthen cashflow and improve credit profiles, Fitch said.

A Democratic president and Democratic-controlled Senate would be credit positive for the U.S. corporate health care sector, Fitch said. The court’s ACA decision becomes less important if executive and legislative control are consolidated under Democratic leadership as there would be an easier path forward for a legislative fix should the court’s pending decision threaten the basis and validity of the current ACA.

Headwind To Profitability

If the court ultimately decides to uphold the law, Democrats would be able to enact legislation to strengthen the ACA. This could include reinstating some industry taxes and fees never implemented, such as the 2.3% medical device excise tax. This could be a near-term headwind to profitability for some issuers, Fitch said.

However, Fitch warned, this may be a long-shot scenario. Many of the ACA-related industry fees were not enforced during the Obama administration, when the balance of power tipped to Democrats. If new taxes and fees are ultimately imposed on the industry, effects on profitability could be offset by an increase in covered lives under a strengthened ACA.

Initiatives around drug pricing and surprising billing could see early traction and would be key items to watch during the first 100 days of the new administration, Fitch said. A single-payer system, which is not part of Biden’s health care plan, would be unlikely.

Progressive health care policies that are more moderate than a single-payer system, such as a public option added to the ACA, are more likely in a Democratic sweep scenario and would be credit negative for health insurers, Fitch said. A public option would be a significantly adverse development for health insurers, as it would likely change the competitive landscape by adding a competitor that could conceivably operate at a loss indefinitely.

Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected]. Follow her on Twitter @INNsusan.

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Susan Rupe is editor in chief, magazine, for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected].