The Supreme Court ruling largely upholding President Obama’s health care reform plan may offer businesses a measure of needed certainty – though it will be months, if not longer, before the new shape of the American health care system really becomes clear.
“We now know what the rules of the road are in terms of how health care reform should proceed,” says researcher Carter Price of the nonprofit RAND Corporation. Lawmakers could still infuse more uncertainty into the picture, of course – House Majority Leader Eric Cantor announced Thursday that the House would vote next month on repealing the law, and Mitt Romney promised to get rid of it if elected.
For now, though, the ruling sent hospital stocks surging but insurance stocks lower as analysts and investors tried to glean what the ruling will mean for those industries. Insurance companies may have been pressured – UnitedHealth Group rose 0.5 percent, but WellPoint (WLP) lost 5.2 percent, and Aetna (AET) slipped 1.1 percent – by worries about the costs of the rules and requirements they will now face. The rise of insurance exchanges brought about by the law will increase pressure on companies like UnitedHealth and WellPoint that have relatively large individual insurance businesses, analysts at Moody’s Investors Service wrote recently. But for managed care organizations, the court’s 5-4 decision was far from the worst-case scenario – some had warned that striking down the individual mandate while leaving the rest of the law intact would have led to a “death spiral” in the individual insurance market.
Instead, the court ruling means that those insurance companies will see an influx of an estimated 30 million new customers and will have to continue their transition to the new rules. In an overview of the health insurance industry released earlier this month, Morningstar analyst Matthew Coffina suggested that “the most favorable outcome for managed care organizations at this point would be for the entire law to be upheld“ – essentially what happened Thursday. “Moreover,” Goldman Sachs analyst Matthew Borsch wrote after the Court’s opinion was handed down, “this ruling implies less uncertainty than any other outcome, in our view, and avoids the 'mandate only' outcome we believe many investors saw as 'worst case.'” The court’s decision to allow the expansion of Medicaid coverage while preventing the federal government from fully pulling funding from states that reject the expansion should still be a positive for Medicaid insurers like Centene and Molina Healthcare, Borsch notes.
And what does Thursday’s ruling mean for employers? “Probably not much at all,” says Tonie Bitseff, an attorney in the Labor & Employment practice at law firm Nixon Peabody. The ruling will allow most provisions of the Affordable Care Act to go forward, meaning that health care providers and insurers, along with businesses and individuals, will need to prepare for a host of new rules and options. By 2014, businesses with more than 50 full-time employees will be required to provide insurance for their workers, or pay a penalty.Smaller companies will not face those penalties, though the National Federation of Independent Business – the small business advocacy group that was on the losing side of the Supreme Court’s decision – warned about other effects that the Patient Protection and Affordable Care Act (PPACA) could carry. “Under PPACA, small-business owners are going to face an onslaught of taxes and mandates, resulting in job loss and closed businesses,” Dan Danner, the president and CEO of the NFIB said in a statement after the ruling. “We will continue to fight for the repeal of PPACA in the halls of Congress; only with PPACA’s full repeal will Congress have the ability to go back to the drawing board to craft real reform that makes reducing costs a number one priority.”
The insurance exchanges could also affect the way some businesses look at their existing employer-sponsored plans. “Businesses should now consider that their employees will have this option of the individual exchange, where they can potentially get subsidies depending on their employees’ income,” says Price of RAND. “That may induce some firms to decide to stop offering health insurance because their employees will now have a subsidized offer on these exchanges.”
In the wake of the ruling, though, businesses that had taken what Bitseff calls the “ostrich compliance strategy” – burying their heads in the sand and waiting to see if the law would be overturned – will have to acknowledge that a major obstacle to the reform has been removed. And they will need to start planning for 2014 and beyond – while still keeping an eye on Washington. “The Supreme Court action here is not the final word,” says Bitseff, “because, of course, Congress always has the option to repeal the legislation.”
Or if Congress fails, a Romney win in November still “could change everything,” the Moody’s analysts wrote. “While it is unlikely that there would be enough votes in Congress to bring about a full repeal of the law, a Republican president could delay and dilute many of its provisions.” So while the Supreme Court has brought a bit of clarity to health care reform, that could all still change soon.