Moody's: 4 effects of ACA repeal on hospitals, insurers and pharma

The seemingly imperiled fate of the ACA and the effects of a potential repeal on the healthcare industry remain uncertain, but Moody's Investors Service outlined predictions on various sectors for the year ahead in its "Healthcare Quarterly" report.

Here are four predictions from Moody's.

1. Health insurers. Moody's forecasts that repeal of the ACA would be credit positive for the health insurance industry as most insurance companies have lost money on the individual market, due largely to the fact that young, healthy people have not enrolled in the numbers expected by the law's advocates. However, for some insurers, such as those specializing in Medicaid, ACA repeal would likely be credit negative because it would spur a significant decline in enrollment. Ultimately, Moody's predicts the overall credit impact will be determined by the Republican ACA replacement plan, which remains unknown.

2. For-profit hospitals. A full repeal of the ACA would be credit negative for for-profit hospitals, Moody's predicts, because the number of covered individuals would drop substantially and lead to an increase in hospitals' bad debt. A June 2015 estimate from the Congressional Budget Office found the number of non-elderly individuals without insurance would rise from 29 million in 2016 to 50 million by 2020 if the ACA is repealed. President-elect Donald Trump has indicated interest in preserving some provisions of the current law, such as the prohibition against insurers denying coverage to people with pre-existing conditions and a condition that allows parents to keep their children up to age 26 on their health plan. Keeping these provisions may mitigate the negative effects of a repeal in some form, as would the reinstatement of certain reductions to Medicare reimbursement rates, according to Moody's.

3. Nonprofit and public healthcare. The repeal of the ACA would cause a reduction in the number of insured people — such as through the elimination of Medicaid expansion and the individual mandate — which would be credit negative for nonprofit hospitals. Eliminating these policies would increase uncompensated care and bad debt and hurt hospitals' bottom lines. However, these negative effects could be short-term if the Trump administration implements certain proposed health reforms, such as enabling the sale of interstate insurance, allowing individuals to roll over health savings accounts and permitting people to deduct health premiums from their personal income taxes, according to Moody's. These reforms, if implemented, would offer large incentives for individuals to purchase insurance from private health plans. However, Mr. Trump's proposal to require greater price transparency from all healthcare providers could pressure hospitals to lower prices to better compete, which could affect top-line revenue growth.

4. Pharmaceuticals. Moody's believes the repeal of the ACA could reduce costs for branded drug companies, but any benefit would be offset by modest revenue erosion. The drug industry has been helping fund the ACA through industry fees and other measures, including higher rebates and discounts. Eliminating one or both of these costs would be credit positive, according to Moody's. However, the ultimate effect of a repeal would depend on how the ACA is undone and whether certain provisions would remain.

On the other hand, repeal of the ACA would have a minimal effect on generic pharmaceutical companies, because unlike brand name companies, generic manufacturers are not subject to the industry fees imposed by the ACA.

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