Any Supreme Court decision on major elements of healthcare reform will have major credit implications for U.S. health insurers, said Moody’s, with two of three scenarios being credit negatives for the industry, according to the ratings agency.
If the High Court rules that the individual mandate is unconstitutional, but holds that the provision is severable from the rest of the Patient Protection and Affordable Care Act (PPACA,) this action would create the most negative credit impact on health insurers of any likely scenario, Moody’s warned.
This would occur under a scenario where the individual mandate is struck down while the rest of the ACA would remain intact.
The Act, “without an individual mandate but with a requirement to insure any applicant would undermine the insurance concept by allowing individuals to purchase insurance only when they were sick,” Moody’s said.
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Health insurance trade lobbies have argued against this scenario in amicus briefs to the court. To make up for the larger and higher risk pool, insurers would be forced to increase premiums, potentially making individual healthcare insurance unaffordable for most of the general public, Moody’s and others have noted. Members from both parties of Congress have acknowledged that without the mandate, the ACA is unworkable.
In addition, if the Supreme Court does indeed uphold the individual mandate with the rest of the healthcare reform law intact, ratings would also be negatively impacted, Moody’s warned. The more onerous provisions of the act are set to begin in 2014, and will “present greater challenges and squeeze margins,” Moody’s stated. These provisions include the implementation of public healthcare exchanges, increased pricing regulation, and additional premium taxes.