Despite huge financial gains under the Affordable Care Act, most insurers remain insulated from Friday's legal ruling that repeals the law in its entirety, even if it withstands a lengthy appeals process.
However, Molina Health and Centene represent two notable exceptions given their heavy investment in the ACA marketplace and Medicaid expansion.
In a note to investors on Monday, Leerink analysts said a Texas judge’s Friday decision to render the entire ACA unconstitutional provided a “buying opportunity” for insurers like UnitedHealth, Humana, Cigna, Anthem, CVS and WellCare. Analysts said those insurers have less exposure to the ruling given their limited investment in ACA exchanges and Medicaid plans.
In fact, a total repeal could present opportunities for some insurers given that it would eliminate the health insurance tax.
“Permanent delay of the Health Insurer Provider Fee (HIPF) is a net positive given it comprises 2% of premiums and can be used for a combination of membership gains particularly in Medicare Advantage and some margin expansion,” Leerink analysts wrote (PDF).
RELATED: Texas judge strikes down ACA as unconstitutional, but long legal path remains
Fitch Ratings offered a more muted analysis Monday afternoon, predicting a “period of disruption for the entire U.S. healthcare system” if the ruling is upheld. That could lead to short-term earnings volatility for some insurers, but it wouldn’t last long.
“Over the longer term, the industry is expected to stabilize much as it did following previous disruption driven by implementation of the ACA,” Fitch analysts wrote.
However, Centene and Molina have invested considerably in both the health insurance exchanges and in Medicaid plans as more states have opted to expand the program. On Monday, Centene said it expects to add 150,000 to 200,000 members to its marketplace plans this year, even as ACA enrollment is down considerably compared to previous years.
Last year, Centene enrolled 1.6 million exchange members, up from 960,000 in 2016.
On Friday, Centene executives credited the company’s success on the exchange to its narrow focus on consumers at or below 250% of the federal poverty level. CEO Michael Neidorff said renewal rates reached 80% during this year’s open enrollment period and effectuation rates hovered around 90%.
Repealing the law could put a huge dent in that business model. Likewise, Centene covers 8.7 million Medicaid beneficiaries, 1.2 million of which are associated with expansion coverage.
Centene said it expects the courts will uphold the ACA but has a contingency plan if that doesn’t pan out.
“In the unlikely event they do not, it is our intent to file for a new product and allow current members to enroll without health underwriting and irrespective of pre-existing conditions,” the company said.
RELATED: Molina continues financial comeback with ‘better than expected’ performance in ACA exchange
Molina is in a similar predicament. The company has mounted a significant financial comeback, thanks in part to huge success on the ACA marketplace. CEO Joseph Zubretsky told investors last quarter the marketplace “has outperformed our expectations” and signaled a willingness to expand into new states in 2020.
Molina issued a statement Monday cautioning that the Texas ruling is “the first step in a lengthy appeals process.” Legal experts have said it could be some time before states even file an appeal.
“Regardless, the ACA will remain in effect for 2019, and we are optimistic that it will remain in effect thereafter,” the company said in a statement.