NEW YORK & CHICAGO--(BUSINESS WIRE)--Offsetting appeals court decisions Tuesday raise uncertainty around health insurance exchanges (HIX). In the near term, Fitch Ratings expects existing benefits to be questioned and confusion about them to lead to lower enrollment in exchange plans in 2015. Over the midterm, we believe it will delay strategic planning for many hospitals. And over the long run, a Supreme Court decision against the federal subsidy could dull the benefits to hospitals in the 36 states with federally operated exchanges.
The District of Columbia Circuit Court of Appeals, using a strict interpretation of the Affordable Care Act (ACA), ruled that the federal government cannot subsidize HIX plans purchased through federally run healthcare exchanges. In a subsequent ruling reached also yesterday, the U.S. Circuit Court of Appeals in Virginia ruled that the intent of the legislation allows the federal government to provide subsidies on policies purchased on any HIX. It seems likely that these cases will be appealed to the Supreme Court.
In the near term, we expect these decisions to create substantial confusion about the validity of subsidies for plans already purchased on exchanges in the 36 states with federally run exchanges, including Florida, Texas and Pennsylvania, which are states where not-for-profit and for-profit hospital companies have a good deal of exposure. According to the U.S. Department of Health and Human Services, 85% of the people that purchased insurance plans through a HIX from October 2013 to April 2014 qualified for a subsidy. Eight million people chose a plan on a HIX over the same period.
We expect few near-term changes for hospitals. Most benefited mainly from expanded Medicaid benefits, not enrollment in HIX plans. However, much of the HIX enrollment occurred in the 1Q14 and that impact will become clearer as providers report second-quarter results. Fitch views the added uncertainty caused by yesterday's contradictory rulings negatively for the sector, as it further delays management's ability to develop and implement strategic plans related to full implementation of the ACA.
Should the Supreme Court rule against the legality of federal subsidy, financial pressure on many hospitals would likely rise. The experience of hospitals in states that have opted out of Medicaid expansion provides some insight; they are absorbing all the reduced Medicare reimbursement, not benefiting from coverage expansion and are operating at a distinct disadvantage to hospitals in those states that opted in.
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