Moody's: AHCA to be credit negative for most for-profit healthcare organizations

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The American Health Care Act will result in a larger uninsured population and a greater reduction in demand for healthcare services, Moody's says. (Getty/BeeBright)

House Republicans' proposed Affordable Care Act repeal and replacement bill, the American Health Care Act, would be credit negative for for-profit hospitals as well as pharmaceutical and medical device companies, according to a major credit rating service.

The Moody’s report suggests the AHCA's effects on credit would be only modestly negative until 2020. At that point, cuts to Medicaid combined with the expected loss of coverage for large numbers of individuals who gained coverage under the Affordable Care Act would generate a “increasingly credit negative” situation, according to Moody’s.

“From 2020, the proposed law, if enacted, would be increasingly credit negative because healthcare coverage would become less affordable for more people—particularly older Americans—resulting in a larger uninsured population and a greater reduction in demand,” explained Moody’s Senior Vice President Jessica Gladstone in an announcement accompanying the report.

Moody’s prediction stems from several issues embedded in the proposed bill:

  • In addition to the loss of coverage for elderly patients and the concomitant drop in demand, cuts to Medicaid funding would “significantly reduce federal Medicaid spending relative to current law,” according to the report. The size of these cuts, estimated at $880 billion compared to current forecasts under the ACA, will hit the bottom line at hospitals, medical device makers and pharmaceutical companies.
  • Existing cuts to Medicare reimbursement rates would hit revenues and margins at hospitals between 2018 and 2026, an issue the AHCA does not cover, notes Moody’s.
  • While Moody’s sees positive news for the industry in the AHCA’s repeal of taxes in 2018, the report indicates that cuts to Medicaid funding and the decline in insured patients would more than offset any benefit.

The announcement continues the AHCA’s rocky reception among both political and industry stakeholders, despite a handful of notable exceptions among insurance companies that stand to gain from the proposed repeal of the health insurance tax.