Republicans Win Latest Obamacare Challenge; Add to Hospital, Insurer Worries

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Hospital and insurer stocks slumped last week after a federal judge in Washington, DC, ruled that some of the funding for President Barack Obama’s signature healthcare law is unconstitutional, potentially jeopardizing a source of their revenue.

Community Health Systems Inc. (Franklin TN) fell 16% to $12.49; Tenet Healthcare Corp. (Dallas TX) dropped 9% to $28.43, and HCA Holdings Inc. (Nashville TN), the biggest U.S. for-profit hospital chain, was down 3% to $77.92. Shares of health insurers , including Humana Inc. (Louisville KY) and Aetna Inc. (Hartford CT), also declined.

In another blow dealt to the Affordable Care Act, known as Obamacare, Judge Rosemary Collyer of the U.S. District Court for the District of Columbia ruled Thursday that the administration doesn’t have the power to provide money to reduce patients’ share of the costs of their health care without a congressional appropriation.

The court stayed its ruling pending an appeal by the administration. Hospitals could be directly affected by the ruling. Government subsidies have helped patients afford coverage for expensive hospital stays and procedures, contributing to the bottom line at hospital companies. Ending those subsidies might discourage patients from signing up for insurance and exacerbate problems with unpaid bills that already plague hospitals.

Without the cost-sharing payment reductions, insurers also may find it difficult to offer plans under Obamacare, which has requirements for cost and coverage at a variety of levels. Collyer noted in her ruling that under the Affordable Care Act, insurers’ obligation to reduce cost-sharing doesn’t depend on whether they receive government reimbursement.

About 71% of plans bought through Obamacare marketplaces, called exchanges, were so-called “silver plans” that provide subsidies to some low-income members, said Chris Rigg, an analyst at Susquehanna Financial Group, in a note to clients. “A loss of cost-sharing subsidies would have a detrimental impact on industry earnings,” Rigg said in the note.

Signed into law in March 2010, the Affordable Care Act has been under near-constant legal assault. House Republicans have tried more than 50 times through legislation to repeal all or part of the law. The U.S. Supreme Court upheld the law’s requirement that all Americans obtain health insurance in June 2012.

Monday, May 16, 2016 / Vol. 24 / No. 19