(FROM THE WALL STREET JOURNAL 6/26/15)
By Anna Wilde Mathews and Christopher Weaver
Health insurers and hospital operators were relieved by
Thursday's Supreme Court ruling, which upholds subsidies for
millions of customers in an industry already bracing for
belt-tightening and a new round of consolidation.
"Now we can get back to business," said Ferris W. Taylor, chief
strategy officer at Utah's Arches Health Plan. But, he said, "it
will be rocky for the next year or two," as the Affordable Care Act
continues to face political and operational challenges. "We still
have a couple more years before we have stable prices, stable
products, stable membership" in the health-law exchanges, he
said.
Anthem Inc., one of the largest insurers by enrollment, and the
Blue Cross Blue Shield Association both said in statements that
they welcomed a ruling that maintains access to coverage for people
getting subsidies across the country.
Shares of big health-care companies jumped Thursday as the
decision offered certainty for companies and their investors after
repeated challenges to the law, including a Supreme Court case in
2012 and the rocky rollout of the insurance marketplaces in 2013.
Executives said they would shift to tackling other coming changes
for their businesses, including some triggered by other parts of
the law, such as cuts to hospital payments.
Much of the industry's attention has been focused on the
possibility of huge insurance deals that could knit together some
of the industry's biggest players and challenge the negotiating
power of hospitals and doctor groups. Anthem has made a $47.5
billion offer for Cigna Corp., which Cigna has rejected. Aetna Inc.
made a recent bid for Humana Inc. UnitedHealth Group Inc. has also
expressed interest in Aetna.
Thursday's ruling means insurers can put away materials they had
prepared to educate consumers in the event they lost the federal
subsidies that were helping pay for their health coverage.
Priority Health, an insurer in Michigan, is sending out emails
and letters reassuring people that their situation won't be
affected. "We want to make sure they feel comfortable and
understand they don't need to worry about affording their
coverage," said Joan Budden, chief marketing officer.
The decision is a coup for hospitals, which have benefited from
a rise in paying customers under the law that has pushed stock
prices in the sector up for a year and cut losses for some
nonprofit facilities. Many of the newly paying patients are covered
by a widely expanded Medicaid program in more than half the states
under the law.
But those who got private insurance in the marketplaces -- often
with subsidies -- have also helped improve hospitals' businesses,
executives have said.
Shares of hospital firm HCA Holdings Inc. rose 8.8% to $90.72 a
share on Thursday. Other big movers included Tenet Healthcare
Corp., which rose 12%, and Universal Health Services Inc., up
7.7%.
"It is business as usual and that is good for us," said Alan
Miller, chief executive of Universal Health. "Bad debt is down,
more people have been covered," he said. Executives at the
hospital-management firm have attributed some earnings increases to
coverage gained in the marketplaces, he said. Any other ruling, he
said, could have disadvantaged millions and "been a dislocation"
for the insurance companies who pay many hospital bills.
"The key thing is federal subsidies now stand, no matter where
you live," said Ronald DePinho, president of the University of
Texas MD Anderson Cancer Center in Houston. Texas doesn't run its
own marketplace, and consumers there risked losing subsidies if the
court ruled for the plaintiffs.
Hospitals' finances haven't uniformly improved over the past
year. Moody's Investors Service has reported that many nonprofits
are financially squeezed, even as their unpaid bills decline. But
publicly traded hospitals have reported rising volumes of inpatient
admissions, surgeries, emergency-room visits and, ultimately,
earnings and revenue since the law's main provisions took
effect.
Insurers' shares also rose early in the day, but the ruling had
been expected to affect the industry's stocks less than those of
hospital companies. Among big insurers, the exchange business
generally represents a tiny share of earnings, at best.
Shares of Molina Healthcare Inc. rose nearly 2%. "This creates
some certainty for us," said CEO Mario Molina, whose company sells
health-law plans in nine states, seven of which use the federal
marketplace and could have been affected by a ruling against the
subsidies.
Ana Gupte, an analyst for Leerink Partners LLC, estimated that
between 1% and 5% of hospital operators' earnings before certain
items were due to the marketplaces, depending on the company. For
insurers, she estimates that about 2% of earnings were related to
the exchanges. Some have been achieving only break-even or even
negative results on the business.
"It's good to have it behind us," said Jeff Sandene, interim
president of the nonprofit Sanford Health Plan, which sells
coverage to individuals in North and South Dakota. But, he said,
"the challenges will still be there."
Aetna said the subsidies were key in attracting consumers to the
exchanges, and "this decision ensures that their health-care
benefits will not be disrupted." But the insurer added that it
believes "that reform of the Affordable Care Act is still needed"
and urged Congress to "focus on solutions that improve quality,
transition our payment system to value-based care and broaden
consumer choice."
Many experts believe industry consolidation is nearly
inevitable, as insurers seek to pare costs, diversify their product
mix and gain clout against health providers.
In the health law's marketplaces, insurers in some states have
been seeking sharp rate increases for next year, partly because the
enrollees they attracted turned out to be less healthy than they
anticipated. At the same time, they will be facing the withdrawal
of some of the law's financial backstops for insurers that enroll
sicker consumers.
While insurers continue to participate strongly in the health
law's marketplaces, some are showing strains.
One of the nonprofit cooperative plans established by the law
has shut down. Assurant Inc. has said it won't be in the health-law
exchanges next year. Humana, which has struggled with some of its
exchange business, has said that if it continues to see losses, it
will exit the marketplaces.
---
Melinda Beck contributed to this article.
Access Investor Kit for Aetna, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US00817Y1082
Access Investor Kit for Assurant, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US04621X1081
Access Investor Kit for Cigna Corp.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US1255091092
Access Investor Kit for HCA Holdings, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US40412C1018
Access Investor Kit for Humana, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US4448591028
Access Investor Kit for Molina Healthcare, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US60855R1005
Access Investor Kit for Tenet Healthcare Corp.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US88033G4073
Access Investor Kit for UnitedHealth Group, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US91324P1021
Access Investor Kit for Universal Health Services, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US9139031002
Subscribe to WSJ: http://online.wsj.com?mod=djnwires