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Senate Healthcare Bill “Credit Negative” For Industry

By Mark Melin. Originally published at ValueWalk.

Not only is the US Senate’s health care bill unpopular – a waft of polls show approval in the low double digits with negatives over 50%, opinions which are reasonably consistent across party lines – but the bill will also be “credit negative” for most companies and related debt in the sector, according to a Moody’s report. What is titled the ” Better Care and Reconciliation Act ” is itself on life support.

Health Care Medicare Better Care and Reconciliation Act
DarkoStojanovic / Pixabay

Better Care and Reconciliation Act: Health care change has historically come amid a bipartisan approach

Healthcare is one of the most contentious issues bedeviling a society. While the US is a leader at fostering medical and technical innovation, access to care has been squeezed at a time when a large demographic bubble is about to retire, providing stress on government programs as never before.

Sweeping changes to core societal mandates such as health care have typically resulted from a bipartisan agreement on the issue. But that has not been the case this go-around.

Republicans in the US Senate have been working on compromise legislation were initially trying to pass something by Friday. If passed, any legislation must be reconciled with the previously passed House of Representatives version of the bill before both chambers vote on. Only then will any healthcare reform bill be sent to President Trump.

“The bill is unlikely in its present form to receive Democratic support, and as of Friday afternoon, five Senate Republicans had indicated they would not support the bill in its current form,” Moody’s noted in a report titled “Senate’s Proposed Healthcare Act Is Credit Negative for Most Affected Sectors.”

It is not just a difficult road with voters, but those inside the healthcare industry could be negatively impacted.

Better Care and Reconciliation Act: Medicaid businesses and insurers impacted by new Senate health care bill

The degree to which the new health care bill impacts an industry varies based on utility and how they are exposed to government funding risks, particularly with regard to Medicaid and Medicare.

Medicaid businesses, reductions in federal funding mean they have less customers and hence lowered revenue projections.

Medicaid cuts also impact insurers from several angles. They benefit from the new program and its treatment of pre-existing conditions, allowing them to “benefit from a more profitable risk pool.” In other words, insurers want to insure the healthy, not those prone to sickness and claims on service. But the repeal of the individual mandate to buy insurance would lower the number of people who choose to buy health insurance, negatively impacting insurers. The lack of a mandate “would mean fewer healthy people would sign up than might have otherwise.”

Uncompensated care costs expected to rise under new Better Care and Reconciliation Act

Perhaps one of the most watched impacts occurs with state agencies, hospitals and healthcare providers on the front lines of care. One impact of a reduction of health care is that those who cannot afford care go to emergency rooms, which are obligated by law to treat such patients regardless of their ability to pay.

Moody’s notes that uncompensated care costs are expected to rise under the proposed Senate legislation.

How cash-strapped state governments operate in a world where hospitals need additional financial assistance is yet to be seen, but the impact on credit points to a negative probability path.

Looking at the larger effect on states, hospitals, and other healthcare providers, Moody’s says the Better Care and Reconciliation Act “would be largely credit negative.”

“Reduced federal Medicaid funding would likely lead states to lower Medicaid enrollment or covered services, which would reduce demand for health care services and create higher uncompensated care costs for hospitals,” the report observed.

The biggest risk to hospitals, though, is from the proposed changes to Medicaid. Transitioning federal Medicaid payments to a per capita, or block grant system, and freezing Medicaid expansion would gradually lower federal funding of Medicaid. This will likely cause states to reduce Medicaid eligibility or pare back benefits. States may also decide to cut payments to hospitals and other providers. The changes to Medicaid funding would also increase hospitals’ exposure to bad debt and uncompensated care costs. The most significant effect on the sector would occur after 2020, when the changes to federal Medicaid funding are phased in.

While the bill would repeal certain taxes on health insurers, medical device, pharmaceutical manufacturers, and hospitals, those benefits are muted if the insured population declines.

With healthcare costs among the biggest government expenditures, costs that are rapidly increasing, all eyes will be transfixed on a potential bi-partisan agreement or, if a bill cannot pass, a ditching of the repeal and replace concept entirely and a move to other issues.

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The post Senate Healthcare Bill “Credit Negative” For Industry appeared first on ValueWalk.

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