HHS Plan to Stabilize Exchanges Seen as Credit-Positive

The proposed rules are seen as an interim measure to stabilize the Obamacare market in the short term, while Congress and the Trump administration work to repeal and replace the Affordable Care Act.

New rules proposed this month by the Department of Health & Human Services would stabilize health insurance exchanges created by the Affordable Care Act and would be credit positive for hospitals and insurers, Moody's Investors Service says.

"Hospitals benefit from functioning health insurance exchanges because they are the primary vehicle for individuals to purchase health insurance and a smaller uninsured population reduces the bad-debt expense that hospitals need to absorb," Moody's said in a Credit Outlook published this week.

"The proposal aims to improve the profitability of health plans offered on the exchanges so that insurance companies are incentivized to continue offering them," Moody's said.

"Specifically, the proposed rules aim to improve the risk pool by limiting people's ability to only sign up for insurance when they need medical treatment. The rules would shorten the annual enrollment period, enhance oversight of consumers who enroll during special enrollment periods, and would require consumers who owe premium payments from prior years to settle those debts before being permitted to renew their annual enrollment."

Good for Non-Profits
Non-profit hospitals with large insurance operations could also benefit from the rules changes. Specifically, Moody's cited these organizations: Intermountain Healthcare in Salt Lake City, UT; University of Pittsburgh Medical Center; Geisinger Health System, based in Danville, PA; and Presbyterian Healthcare Services, in Albuquerque, NM.

Moody's estimates that the health insurance industry lost $3 billion on the exchanges in 2014 and more in 2015. The losses likely continued in 2016, but they were offset somewhat because of higher premiums, redesigned plans and more selective participation.

While the proposed rules are seen mostly as a credit positive for hospitals, there is the potential for some credit negatives because they will prevent some people from obtaining health insurance, particularly people in need of medical care.

"As an isolated factor, this is credit-negative for hospitals because it will lead to an increase in bad debt and uncompensated care," Moody's said. "However, despite this negative aspect of the proposed rule changes, hospitals stand to lose more from the exchanges collapsing."

Payers Support the Rules
The proposed rules changes have the support of America's Health Insurance Plans, the insurance industry group headed by former administrator of the Centers for Medicare & Medicaid Services, Marilyn Tavenner.

"We commend the Administration for proposing these regulatory actions as Congress considers other critical actions necessary to help stabilize and improve the individual market for 2018," said Tavenner, AHIP's president and CEO.

"Our commitment is to ensure short-term stability and long-term improvements," Tavenner said. "While we are reviewing the details, we support solutions that address key challenges in the individual market, promote affordability for consumers, and give states and the private sector additional flexibility to meet the needs of consumers."