After months of uncertainty, America’s $2.7 trillion health care industry finally has a few answers.
The Supreme Court ruled this morning that the health-care law stands. For months now the pending ruling has put the Affordable Care Act’s future in limbo. Now everyone knows it has survived and – while other challenges are still ahead – it gives a bit more guidance on where things head next. Here’s a look at what that means for three major health-care sectors.
Health insurance companies
Major health insurance stocks plummeted right after the ruling but have been edging upwards over the morning. That might reflect the market girding for the individual mandate being overturned (earlier this morning, InTrade had pegged the odds at 79 percent). That didn’t happen though – and that likely has insurance companies breathing a sigh of relief.
The big fear on the part of health insurance companies was that the individual mandate would get overturned, and people would only buy health insurance when they needed it. That would cause premiums to rise and enrollment to shrink.
Health insurance companies aren’t necessarily thrilled about the prospect of the law coming into effect; it means they essentially have to overhaul a business model they have worked with for decades.
“The law being completely overturned would be the best case scenario for the managed care industry immediately,” says Jason Gurda, an analyst with Leerink Swann who covers the health care sector. “Whether this is the best case for the industry depends on where they head in the longer term direction.”
Where they’re headed now looks like this: 16 million Americans are expected to gain private health insurance coverage by 2019. One analysis from Bloomberg government finds that insurers can expect a $778 billion increase in revenue over the next decade because of that.
“Insurers have the most to gain here,” says Bloomberg health care analyst Matt Barry, who wrote that report. “There are a lot of dollars flowing through them.”
Stocks of major hospital companies spiked after the Supreme Court decision, and with good reason: For decades they have been the ones who have covered the costs of providing health care to the uninsured. A federal law requires emergency rooms to provide stabilizing care to anyone whose life or bodily function may be threatened. It’s hospitals that often get stuck with that bill.
The Affordable Care Act will change that by expanding health insurance to about 30 million more Americans and making insurance companies responsible for paying their bills.
“The largest impact of repeal is that, if you take away the mandate, you don’t get the coverage expansion expected under the legislation,” says Dean Diaz, a vice president at Moody’s who focuses on for-profit hospitals, wrote in a recent report. “That, in turn, leaves hospitals with increasing uncompensated care costs.”
Today’s ruling is also likely to give hospitals more confidence in the recent investments they have made. Many have planned around the law’s changes to Medicare payments aiming to reimburse hospitals for the quality of health care they provide, rather than the quantity.
“The good news is that the decision eliminates the uncertainty surrounding the constitutionality of the Act, which unquestionably has served as a catalyst for important change in the industry,” says a statement from VHA Hospitals, a national chain of 1,400 nonprofit hospitals.
Pharmaceutical companies may be one of the industries least impacted by today’s news. About 4 percent of the industry’s revenue over the next eight years depends on the Affordable Care Act, according to the Bloomberg Government report.
The companies get some benefits – an expansion of health insurance will likely mean more Americans using their products – but there are also some drawbacks, like the industry’s $80 billion commitment to help fund the legislation, largely by sending out rebates to some Medicare beneficiaries and making brand-name drugs more affordable for senior citizens.
In general though, the industry has bigger issues to weather than the Affordable Care Act. It has seen its number of blockbuster drugs drop in recent years just at the same time that some of its biggest earners have come off patent and gone generic. That probably explains why you don’t see the stocks of major pharmaceutical companies, like Pfizer and Teva, reacting much at all to this morning’s news.
“Within the industry there are some major issues to deal with that have nothing to do with the health reform law at all,” Barry says.