End­ing Oba­macare sub­si­dies won’t sink big in­sur­ers, an­a­lysts say

Modern Healthcare - - NEWS - By Bob Her­man

Pub­licly traded in­sur­ers may not feel too much fi­nan­cial pain in the short term if the U.S. Supreme Court strikes down Oba­macare pre­mium sub­si­dies of­fered through the fed­eral ex­change, Wall Street an­a­lysts say.

But the loss of the sub­si­dies would ham­mer the business plans of Blue Cross and Blue Shield plans and not­for-profit co-op plans. The Blues have cap­tured large mar­ket shares in many states us­ing the fed­eral ex­change.

The rea­son pub­licly traded in­sur­ers wouldn’t be overly af­fected is that the ex­change business rep­re­sents a small por­tion of their over­all prof­itabil­ity. In ad­di­tion, plans of­fered on state-run ex­changes in places such as Cal­i­for­nia and New York would be un­af­fected, un­less Congress rolled back the en­tire law fol­low­ing the rul­ing.

“The im­pact may not be as ma­te­rial as you think at first, but it’s not nec­es­sar­ily a pos­i­tive by any mea­sure,” said Vishnu Lekraj, a Morn­ingstar an­a­lyst.

Some in­sur­ers, such as Aetna, Cigna and Hu­mana, are more de­pen­dent than oth­ers on the fed­eral ex­change, which could make the Supreme Court decision more con­se­quen­tial for them.

Ana Gupte, a man­ag­ing di­rec­tor at Leerink Part­ners, said ex­change plans are con­tribut­ing less than 1.5% to­ward earn­ings-per-share growth this year for the big pub­lic in­sur­ers.

If the Supreme Court in the King v. Bur­well case next year in­val­i­dates tax cred­its in at least 34 states us­ing the fed­eral ex­change, mil­lions of Americans now re­ceiv­ing the sub­si­dies likely would drop their cov­er­age, dis­rupt­ing the in­surance mar­ket and driv­ing up pre­mi­ums.

Cigna and Hu­mana have lost money on their ex­change plans this year, though they ex­pect to break even in 2015. Many an­a­lysts have pre­dicted sus­tain­able profit mar­gins won’t oc­cur un­til 2016 at the ear­li­est.

Still, the big eight pub­licly traded in­sur­ers are ex­pected to col­lect $7.6 bil­lion in rev­enue from fed­eral ex­change en­rollees in 2015, Gupte said.

Josh Weis­brod, a part­ner at Bain & Co., said if the sub­si­dies are thrown out, some in­sur­ers plan to sol­dier on with the loss of cus­tomers.

“There may not be all that much they can do” un­til the court rules, he said. Oth­ers hope the Obama ad­min­is­tra­tion and Congress would find a way to let peo­ple keep their tax cred­its and cov­er­age. “Wash­ing­ton will not want mem­bers who are get­ting sub­si­dies to­day knock­ing on their doors won­der­ing where their sub­si­dies went,” he said.

Steve Halper, a man­aged-care an­a­lyst at FBR Cap­i­tal Mar­kets & Co., said the in­surance mar­ket would go “hay­wire” if the court strikes down the sub­si­dies.

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