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Will PPACA collide with the Cliff?

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Coverage expansion and benefits mandate provisions in the Patient Protection and Affordable Care Act (PPACA) could protect health insurers against some of the effects of the federal government “going over the Fiscal Cliff.”

Stephen Zaharuk, a rating analyst at Moody’s, has analyzed the possible interactions between PPACA and the Fiscal Cliff in a credit outlook commentary.

PPACA is set to impose many changes on the U.S. health insurance market — ranging from new requirements that some individuals buy health coverage to new federal subsidies for state Medicaid programs — starting in 2014.

The “Fiscal Cliff” negotiations — efforts to replace a temporary federal budget measure with a new budget measure — could lead either to federal tax and spending changes consciously designed by members of Congress and the Obama administration, or to ”go over the Fiscal Cliff,” which would result in a combination of automatic tax increases and automatic cuts in many types of federal spending.

“For health insurers, the negative credit implications from a Fiscal Cliff-induced recession are from increased medical costs and decreased enrollment and revenue,” Zaharuk wrote in his commentary.

Rising unemployment could hurt commercial group health plan enrollment, Zaharuk said.

But PPACA could increase employer spending on coverage for the workers who still have jobs, and PPACA-provided Medicaid expansion funding would be another source of new revenue, Zaharuk said.

Because of the PPACA changes, “the sector may be able to gain back a good portion of membership and revenue lost to layoffs,” Zaharuk said.

A Standard & Poor’s credit analyst, Joseph Marinucci, also is identifying concern about a Fiscal Cliff-driven drop in commercial group plan enrollment as a factor that could hurt health insurers and hopes for a PPACA-driven increase in government plan enrollment as a factor that could help health insurers.

“Most of the health insurers we rate remain on generally sound financial footing,” Marinucci said in an S&P commentary.

Because credit quality among most health insurers is strong, S&P sees only limited potential for the insurers’ ratings to fall in the coming year, Marinucci said.

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