Recent ACA ruling won't affect credit of nonprofit hospitals, Moody's says

A federal judge's ruling this week that the entire ACA is unconstitutional won't have immediate credit implications for nonprofit hospitals, Moody's Investors Service said.

"We expect that the decision will be appealed, and if an appeals court rules in favor of the Texas ruling, it would ultimately be heard by the U.S. Supreme Court," said Moody's. "The Texas court's ruling has no immediate credit implications for states, hospitals or health insurers since the ACA will remain in effect during the appeals process."

On Dec. 14, U.S. District Judge Reed O'Connor of Texas ruled that the ACA's individual mandate requiring people to have health insurance is unconstitutional and the rest of the law is invalid.

Moody's said a Supreme Court finding that the entire ACA is unconstitutional would be a credit negative for hospitals and insurers because that decision would end federal funding for Medicaid expansion and subsidies to people buying coverage on the ACA health exchanges.

"It would increase the number of uninsured patients, resulting in higher bad debt and uncompensated care," said Moody's. "An end to federal funding would also be credit negative for insurers because it would eliminate Medicaid expansion, which was responsible for the bulk of the net gain in the insurance rolls, and would eliminate subsidies on health exchanges, which could make insurance unaffordable for the 8 million to 9 million people who currently receive subsidies."

Moody's said a Supreme Court ruling that only the ACA's individual mandate is unconstitutional "would have far more limited credit implications."

 

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