Adverse Supreme Court ruling on subsidies could hurt for-profit hospitals

The U.S. Supreme Court's recent decision to hear whether taxpayer subsidies to purchase commercial healthcare coverage are legal may wind up negatively impacting for-profit, publicly traded hospitals, Bloomberg News has reported.

The Supreme Court's decision to hear King v. Burwell late last week was a negative for hospital stocks, which could wind up having to treat millions of uninsured Americans who would have had coverage under the Affordable Care Act, the article noted. Community Health Systems dropped 5.5 percent to below $48 at the close of New York Stock Exchange trading. HCA Holdings Inc. (HCA), the largest U.S. hospital company, fell 4.7 percent to below $66 a share.

The suit, which was brought by four Virginia residents, claims that language in the Affordable Care Act requires health insurance exchanges to be established by individual states in order for their residents to collect tax subsidies that would reduce the cost of their health insurance. Thirty-six states rely on the federal health insurance exchange for their residents to purchase coverage. The Internal Revenue Service has issued a regulation concluding that such a subsidy can be obtained either through a state-run or a federal exchange, according to the New York Times.

"It's hard to predict for sure how things could play out politically or administratively," said Chris Rigg, an analyst at Susquehanna International Group LLP, according to Bloomberg News.

Should the Supreme Court rule that subsidies can only be honored through state exchanges, some 7 million Americans could lose their subsidies, which cost the federal government about $36 billion a year to provide. Healthcare sector observers say the Obama administration could craft a workaround for most people to obtain subsidies if there is an adverse ruling.

A study conducted late last month by the RAND Corporation concluded that an elimination of subsidies would cause premiums to rise as much as 43 percent, while individual enrollment could drop by as much as 68 percent. And some hospital systems have admitted that the ACA has helped boost their bottom lines.

For more:
- read the Bloomberg News article
- check out the New York Times article
- here's the RAND study