The failure of Senate Republicans' healthcare bill creates greater uncertainty for insurers, especially in regard to the future of cost-sharing reductions that help insurers subsidize the cost of coverage for low-income Americans, according to Fitch Ratings.
The Better Care Reconciliation Act, intended to repeal and replace the ACA, collapsed earlier this month due to lack of support. Senate Majority Leader Mitch McConnell, R-Ky., subsequently proposed a full ACA repeal strategy that involves repealing major portions of the ACA and initiating a two-year delay to allow for development of a replacement plan. The repeal would come as an amendment to the House-approved American Health Care Act, similar to a measure passed by the Senate in 2015 and vetoed by former President Barack Obama.
Fitch said it believes there is greater uncertainty around the ACA's CSR payments, given these developments.
"If CSR payments are discontinued before insurers have time to increase premium rates and adjust benefit designs accordingly, financial results of health insurers with individual market concentrations could suffer significantly. This risk is somewhat mitigated by expectations that policymakers would aim to give insurers time to adjust, to help maintain stability in the individual health insurance market," the agency added.
Fitch said it also believes the individual and Medicaid markets will feel the effects from proposed healthcare reform more heavily than the employer group market.
"Individual and Medicaid business represent fairly small proportions of membership and revenue for most of the U.S. health insurers we rate," Fitch said. "The credit profiles of large, diversified health insurers are unlikely to be significantly affected by the potential legislative outcomes but smaller, less diverse insurers could be materially affected, particularly health insurers that focus on the Medicaid market."
The Republican-led House filed a lawsuit in 2014 over the payments, arguing they were not legally funded. Two years later, House Republicans prevailed in the lawsuit, which was followed by an appeal from former President Obama's administration. The current White House has delayed the lawsuit, and CSR payments have continued amid healthcare reform efforts.