Health

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

The GOP effort to repeal and maybe replace the Affordable Care Act is the Rasputin of health bills: It's been shot, poisoned, thrown into an icy river, and still isn't dead.

And it will it live on a little longer, after Senate Republicans voted on Tuesday to start a period of debate over its fate.

This time the bill is reanimating in the middle of earnings season. The second-quarter success of ACA-focused insurer Centene Corp. and the struggles of hospital mega-chain HCA Healthcare Inc., both of which reported results on Tuesday, highlight how much of a mess can still be made by a health-care effort presumed to be dead. 

Roller Coaster
A hefty heaping of drama in the Senate has made for a very unusual earnings day in the health care sector
Source: Blooomberg
Intraday times are displayed in ET.

Anyone who's attempted to read the tea leaves on this bill has long since smashed their cup against the wall. The Senate voted to debate a bill; we just don't know what will be in it. There's no full text. There's been no Congressional Budget Office score of a final proposal. There hasn't been a single public hearing. And there's no certainty Senate Majority Leader Mitch McConnell can get 50 votes together on anything other than a discussion of an intentionally amorphous bill. We're in the health-care twilight zone. 

The Senate may end up at a so-called skinny repeal, which just gets rid of the ACA's individual mandate and some of its taxes. It will likely vote at some point on a bill that repeals the ACA with a two-year delay, but that will almost certainly fail. The Senate's "repeal and replace" bill, meanwhile, has been unable to muster enough votes and still seems unlikely to pass.

So skinny repeal may be the only thing the GOP can get done, possibly with a hope to hash out a more-complete deal in conference with the House. Even skinny repeal will be bad news for many health insurers, though.

As the Senate ponders eviscerating the ACA, Centene is doing well by it. The company beat earnings estimates in the second quarter, as net income soared. Its CEO attributed these results largely to better-than-expected performance in the ACA's individual insurance exchanges.

Up
Centene's income is soaring as it continues to succeed where others have failed in the ACA's individual exchanges
Source: Bloomberg Intelligence

Centene's success could disappear in a hurry under a skinny ACA repeal. Ending the law's individual mandate while keeping regulations protecting people with pre-existing conditions could create a death spiral in the individual insurance market. Fewer healthier people will sign up for the exchanges in the absence of a penalty for not having insurance. That will force insurers to hike premiums. That will deter more healthy people from signing up -- and so on. 

Centene would be forced to rethink its exchange participation, as well as any expansion to exchanges other insurers have fled.

The skinny repeal scenario also leaves open the possibility of vast Medicaid cuts being reintroduced to the bill in conference. Most of Centene's enrollment comes from that program.

As for HCA, skinny repeal and the lingering possibility of Medicaid cuts could make its bad situation much worse. 

HCA's second-quarter earnings were grim enough to push shares of other hospitals down in empathy on Tuesday. It missed earnings estimates and cut its Ebitda outlook for the year. Weak patient volume, an increase in business from lower-margin government payers, and rising bad debt related to uncompensated care all helped squeeze HCA's Ebitda margin.

All of the above could get worse under skinny repeal or a conference bill that slashes Medicaid. Skinny repeal could result in 15 million people becoming uninsured over 10 years. Fewer people with insurance means worse volume growth.

And while Medicaid may not provide HCA's most-profitable patients, you can bet the company will suffer if there are millions fewer of them. And its margins will get a lot worse if states have hundreds of billions of federal dollars cut from their budgets, as conservatives in the House will likely insist. 

Looking Down
Margins at HCA are already under pressure -- the Senate effort to repeal parts of the ACA could make things even worse
Source: Bloomberg

Senator John McCain -- who showed up in Washington despite brain cancer to vote for the debate -- said in a speech on the Senate floor that he won't vote for the GOP bill in its current (unspecified) form, casting further doubt on its eventual passage. But health-care investors still need to buckle in for a long ride over the next few days. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Max Nisen in New York at mnisen@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net