Hospitals, Insurers Drop on Ruling Against Obamacare Funding

  • Tenet, HCA, Anthem, Aetna shares slide after court decision
  • Federal court says subsidies require appropriation by Congress

Hospital and insurer stocks dropped after a federal judge in Washington ruled that some of the funding for President Barack Obama’s signature health-care law is unconstitutional, potentially jeopardizing a source of their revenue.

Community Health Systems Inc. fell 11 percent to $12.56 at the New York close. Tenet Healthcare Corp. dropped 9.8 percent to $28.41 and HCA Holdings Inc., the biggest U.S. for-profit hospital chain, was down 3.2 percent to $77.69. Shares of health insurers, including Anthem Inc. and Aetna Inc., also declined.

In another blow dealt to the Affordable Care Act, known as Obamacare, Judge Rosemary Collyer of the U.S. District Court for the District of Columbia ruled Thursday that the administration doesn’t have the power to provide money to reduce patients’ share of the costs of their health care without a congressional appropriation. The court stayed its ruling pending an appeal by the administration.

Hospitals could be directly affected by the ruling. Government subsidies have helped patients afford coverage for expensive hospital stays and procedures, contributing to the bottom line at hospital companies. Ending those subsidies might discourage patients from signing up for insurance and exacerbate problems with unpaid bills that already plague hospitals.

Cost-Sharing Subsidies

Without the cost-sharing payment reductions, insurers also may find it difficult to offer plans under Obamacare, which has requirements for cost and coverage at a variety of levels. Collyer noted in her ruling that under the Affordable Care Act, insurers’ obligation to reduce cost-sharing doesn’t depend on whether they receive government reimbursement.

About 71 percent of plans bought through Obamacare marketplaces, called exchanges, were so-called “silver plans” that provide subsidies to some low-income members, said Chris Rigg, an analyst at Susquehanna Financial Group, in a note to clients.

“A loss of cost-sharing subsidies would have a detrimental impact on industry earnings,” Rigg said in the note.

Signed into law in March 2010, the Affordable Care Act has been under near-constant legal assault. House Republicans have tried more than 50 times through legislation to repeal all or part of the law. The U.S. Supreme Court upheld the law’s requirement that all Americans obtain health insurance in June 2012.

Still, Thursday’s ruling is a victory for the Republican-controlled House of Representatives, which brought the suit challenging the payments and alleging that Health and Human Services and Treasury secretaries were spending “public monies not appropriated by the Congress.”

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