Ratings agencies: No immediate impact on hospitals' credit from Texas ruling

A ruling by a Texas judge striking down Obamacare won't have any immediate credit implications for states, hospitals or health insurers as it heads through the expected appeals process, said experts from some of the top credit rating agencies. (Getty/utah778)

A ruling by a Texas judge striking down Obamacare won't have any immediate credit implications for states, hospitals or health insurers as it heads through the expected appeals process, said experts from some of the top credit rating agencies.

But, they said, it raises serious concerns about potential future financial impacts for health systems should the ruling survive expected appeals.

Their comments come on the heels of a decision by U.S. District Judge Reed O'Connor of the Northern District of Texas, who sided with 20 attorneys general in their lawsuit against the Affordable Care Act, ruling that the entire law is unconstitutional due to a recent change in federal tax law.

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It is expected it could result in a lengthy legal battle that could ultimately bring the law to the Supreme Court once more.

While Fitch Rating's Head of U.S. Non-Profit Hospitals & Health Systems Kevin Holloran said he expects the law will prevail, he warned against the potential consequences to the hospital sector should the ruling stand. The potential loss of Affordable Care Act policies, either through repeal or legal challenges to its constitutionality, could be especially hurtful to the nonprofit healthcare sector in states that have expanded Medicaid, he told FierceHealthcare.

RELATED: Texas judge strikes down ACA as unconstitutional, but long legal path remains

Specifically, millions of people who receive healthcare insurance under expanded Medicaid would likely become bad debt or charity for those providers, Holloran said. "If for some reason this gets eliminated, this is not good for our sector from a revenue standpoint and a care standpoint," Holloran said.

He also cautioned that the case and the renewed debate it generated will increase uncertainty for healthcare providers and the public, Holloran said. "Certainly I would imagine there are people at home sitting there reading about this, wondering 'Am I still covered?'" he said.

In a short report released Monday, Moody's Investors Services said health systems will want to consider several different scenarios should the case make it to the Supreme Court.

"It could find the entire ACA unconstitutional, rule that only a portion of the law is unconstitutional, or uphold the entire law. It is also possible that Congress uses this legal challenge as an opportunity to write a new healthcare law," Moody's said in its report.

If the entire law is found to be unconstitutional, federal funding for Medicaid expansion and subsidies to individuals purchasing insurance on the health exchanges would end and greatly impact the entire market. "The ACA has had a significant effect on insurance coverage, cutting the national uninsured rate to approximately 8.8% from over 13% before the law went into effect," Moody's said in the report.

RELATED: 20 states sue to eliminate the ACA, citing provisions of the new tax law

That particular scenario would be a "credit negative" for hospitals, Moody's said. Meanwhile, the credit effect on states would depend on their responses to the ultimate ruling. For example, some states have not expanded Medicaid and would not lose any funding, while others that expanded Medicaid coverage would likely revert to prior eligibility levels and eliminate ACA-related spending.

"Although many states have 'poison pill' language in their Medicaid expansion laws that would eliminate expanded state coverage if the federal law is struck down, they nonetheless would face political pressure to help their expansion populations," Moody's said. "The decisions to preserve or rescind coverage will have significant credit implications for the hospitals and insurers operating in those states."

A ruling that allows the ACA to stand while striking down the individual mandate would be far more limited, the agency said in its report.

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