Fitch: ACA Political Showdown Negative for U.S. Healthcare

The political showdown developing in Congress regarding the Affordable Care Act (ACA) could bear negative implications for the U.S. healthcare industry, according to Fitch Ratings, especially if these debates dampen the early benefits of expanding health insurance coverage through the ACA.

Fitch believes the implementation of the ACA’s health insurance expansion elements in early 2014 will be a catalyst for growth for the industry. The federal government projects the addition of 19 million Americans to the insured rolls in 2014-2015 due to the expansion of state Medicaid programs and the individual mandate to purchase health insurance. The expected benefit to the industry stems from a cumulative effect of increased demand for healthcare services by the newly insured and a lower financial burden of caring for uninsured patients.

The expansion of health insurance under the ACA would coincide with organic growth in healthcare spending that is well below historical levels for the past several years. According to data published last week, the Centers for Medicare and Medicaid Services project a continuation of weak growth of below 4% in national health expenditures in 2012-2013. The weak economic recovery, an ongoing 2% sequestration of Medicare payments and the branded patent drug cliff are all contributing factors.

The expansion in health insurance is expected to help defray the negative effects of the ACA on the healthcare industry’s profitability. For the past several years, companies have been absorbing various tax, fees and payment cuts required by the legislation, including the 2.3% medical device excise tax, the branded pharmaceutical industry fee and reductions in Medicare payment rates to hospitals and other healthcare providers.

Some Republican members are seeking to defund the ACA while some state governments are hindering the ability of individuals to enroll in health plans offered on the insurance exchanges planned to open on Oct 1.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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