Extended ACA Enrollment Good News for Hospital Margins

Fitch Ratings sees financial good news for providers as the Biden administration moves to strengthen the Affordable Care Act.

President Joe Biden's executive order opening a three-month enrollment period for health insurance under the Affordable Care Act "would generally improve the financial position of not-for-profit hospitals," Fitch Ratings says.

In an issues brief published this week, the bond rating agency notes that hospital margins have been squeezed by several factors during the public health emergency, including higher volumes of uninsured patients who've lost job-sponsored coverage, high COVID-related caseloads, increased costs for medical scarce personal protective equipment and other medical supplies, regulatory uncertainties, and reductions in money-making elective procedures and surgeries.

"Reducing the number of uninsured and shifting the payor mix towards Medicaid coverage and privately insured will help mitigate revenue pressures," Fitch says.

Fitch notes that Biden did not campaign on an aggressive expansion of healthcare, such as the public option or Medicare for All.

Instead, his administration is expected to reduce the numbers of uninsured Americans with a focus on raising the upper-income eligibility for health insurance premium subsidies, increasing premium tax credits for coverage obtained through ACA Marketplaces, and raising the Medicaid poverty-level threshold, which could encourage the 12 hold-out states that have not expanded Medicaid to relent and adopt the ACA.

"This latter change would be credit-positive for hospitals in states where Medicaid has not been expanded, although political headwinds in key states like Texas persist," Fitch says. "It remains to be seen whether certain Medicaid waivers such as work requirements or block grants granted by the Trump administration will be rescinded by the Biden administration."

Democratic control of Congress and the White House also means that hospitals can breathe a little easier knowing that the ACA is no longer under threat of elimination, Fitch says.

The U.S. Supreme Court is expected to rule at mid-year on California v. Texas. However, even if the high court agrees with the plaintiff states that the individual mandate is unconstitutional and inseverable from the rest of the ACA, Democratic majorities in the House and Senate could easily remedy the matter legislatively.

More than 20 million people would lose health insurance coverage if the ACA were eliminated.

"This would generally reduce hospital revenues and could exert downward rating pressure on hospitals, particularly in states that expanded Medicaid coverage under the ACA," Fitch says.

Hospital stakeholders will also wait to see if the Biden administration rescinds other Medicaid waivers approved by the Trump administration, including Medicaid block grants and work requirements.

A proposal by the Biden administration to lower the age eligibility for Medicare to 60 is expected to have mixed results for providers "if a significant number of people move to Medicare from commercial payor coverage," Fitch says.

It's also not clear how much support that proposal has in Congress.