(Bloomberg) — The possible departure of insurance leader UnitedHealth Group Inc. (NYSE:UNH) from the Patient Protection and Affordable Care Act (PPACA) public exchange system signals worsening prospects for hospitals already facing a slowdown in gains from the program.
UnitedHealth said Thursday it expects to lose as much as $500 million next year selling PPACA-compliant individual coverage. The company has scaled back marketing efforts for individual health insurance plans, and it may stop participating in 2017.
Hospitals, including for-profit chains HCA Holdings Inc. (NYSE:HCA) and Tenet Healthcare Corp. (NYSE:THC), have already agreed to cuts in Medicare reimbursements, expecting they’d see fewer uninsured patients, said Sheryl Skolnick, an analyst with Mizuho Securities USA Inc. in New York. The administration has predicted slow growth in sign-ups under PPACA, and UnitedHealth’s announcement suggests insurers are less willing to participate.
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Hospitals are “going to ratchet back their expectations for ’16,” Skolnick said in a telephone interview. “They may feel real pressure in terms of growth in newly insured for next year.”
PPACA has been a boon to health care companies since going into full swing in 2014.
Yet progress toward insuring all Americans may have plateaued. The administration has projected about 1 million in new paid enrollment next year, far short of an earlier estimate from the Congressional Budget Office of 8 million.
“Nationally, we’re seeing that reform is feeling kind of tired,” Skolnick said. “It no longer has the momentum you’d need to feel optimistic for eliminating uncompensated care and treating the uninsured.”
PPACA boosted hospital earnings before interest, taxes, depreciation and amortization by an average of 9 percent this year, and half of that came from patient enrollment through insurance exchanges created by the act, according to Joshua Raskin, an analyst with Barclays PLC in New York. If insurers continue to see participation in the exchanges as unsustainable, hospitals could experience “significant uncertainty” in 2017, he wrote Thursday in a note to clients.
Shares of HCA, based in Nashville, Tenn., fell 6.9 percent to $65.39 at 4:00 p.m. on Thursday in New York; Dallas-based Tenet tumbled 8 percent to $30.40 and Community Health Systems Inc. of Franklin, Tenn., dropped 7.9 percent to $26.32.
This table from Bloomberg Intelligence analyst Jason McGorman shows the boost that hospital chains — including Tenet and Community Health — have gotten from PPACA.
PPACA has significantly reduced the number of uninsured in the United States, from a high of 18 percent of adults in 2013 to about 9 percent in the first half of 2015, according to government data. Supreme Court challenges to the law have largely failed, and proponents say the program, like the Bush administration’s expansion of drug coverage for the elderly under Medicare Part D, is “here to stay.”
Yet some hospitals saw a recent disturbance in these trends. Uninsured admissions at HCA rose 14 percent in the third quarter from a year earlier, Chief Financial Officer William Rutherford said on an Oct. 27 conference call, adding that many patients may have left their insurer because they haven’t been able to pay their premiums.
“We saw a slowing of Medicaid conversions in the quarter — that is, uninsured patients that become qualified for Medicaid,” he said. “We also saw an increase in the number of people previously registered as insured that were converted to self-pay.”