March 21, 2012 / 5:00 PM / 6 years ago

TEXT-Fitch on pending ruling of Affordable Care Act

NEW YORK, March 21 (Reuters) - Fitch Ratings believes the U.S. Supreme Court’s pending decision on the constitutionality of the Patient Protection and Affordable Care Act (ACA) could have some implications for the healthcare sector. However, we do not expect the outcome to affect the outlooks or ratings of our rated corporate healthcare issuers.

Several matters are scheduled for discussion, but the focus of the challenge is the individual mandate under which every U.S. citizen would be required to purchase health insurance - meaning an unprecedented mandatory U.S. consumer purchase and the heart of the constitutionality debate. We believe the mandate is necessary in order for the ACA to at least partially share risk and avoid adverse selection. If squashed, we feel that the law’s viability could be meaningfully affected.

Uncertainty surrounding timing and implementation of the law are still evident, and we believe industry stakeholders are therefore allowing for meaningful variance in their strategic and operational processes. U.S. justices will begin hearing arguments beginning March 26.

If the ruling disaffirms select provisions of the law, we would need to review those changes within the context of how the entire law would then function and potentially affect the credit profiles of the various industry participants. We also believe some action via Congress might also be necessary, particularly if the court determines the individual mandate is unconstitutional.

However, if the court rules that the ACA in its entirety is constitutional, we would maintain our original view that volume increases will be somewhat offset by margin declines. We still anticipate that costs on the front end of the implementation timeline would pressure margins in advance of a one-time step-up in volume beginning in 2014, when roughly 32 million new patients would receive healthcare insurance coverage. Essentially, a canceling out would occur having no effect on credit profiles. Contrarily, if the entire law is negated, margins would likely remain stable with no step-up in volume and the status quo would generally be preserved.

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