Despite the uncertainty Wednesday's appeals court decision on the Affordable Care Act injected into the market, it could actually be a best-case scenario for payers, experts say.
The Fifth Circuit Court of Appeals found the ACA's individual mandate requiring Americans to purchase health insurance unconstitutional in a clear win for Republican states attempting to overthrow the decades-old law in the courts.
However, instead of agreeing with a district court's controversial decision finding the entire ACA unconstitutional based on the law not being severable from the mandate, the appeals court said the district court needed to further flesh out its legal reasoning on the severability question: whether a single provision of a statute (in this case, the individual mandate) being found unenforceable invalidates the entire law.
"It was quite an odd decision," Rick Zall, head of law firm Proskauer's healthcare group, told Healthcare Dive. "They didn't really grapple with the key issue everyone was most concerned with, which was the severability issue."
The ruling Wednesday came down along party lines, with two Republican appointees in the majority and one Democrat dissenting. However, the majority signaled it was open to keeping key parts of the almost decade-old law, like Medicaid expansion and the exchanges.
Despite the ongoing volatility of the legal battle, that bodes well for payers, as many in the legal community thought the Fifth Circuit's decision could be much worse given the lines of questioning from Republican judges in July arguments.
Jefferies analyst David Windley heralded the decision as a "clear positive" for managed care organizations in a Thursday morning note and A.J. Rice of Credit Suisse agreed, writing it's a "positive for the hospitals and the MCOs, as it will push the issue past the 2020 election cycle and keep the status quo in place for now" in a post-decision note Wednesday.
Payer stocks rose in early morning trading Thursday. Molina Healthcare, which has 8% of its total membership in the marketplace, and Centene, which has 12%, were both up more than 3% Thursday morning.
By contrast, payer stocks plummeted a year ago this month when U.S. District Court for the Northern District of Texas Judge Reed O'Connor ruled the individual mandate was unconstitutional and "inseverable" from the law as a whole, essentially striking down the ACA. According to O'Connor's reasoning, the law became unconstitutional after Congress set the mandate penalty to zero in GOP-led tax overhaul legislation in 2017.
President Donald Trump's Department of Justice declined to defend the law in court and, in a partisan turn, called for the its total elimination in March. However, despite the Republican Party's ongoing attempts to chip away at the ACA, experts noted the Fifth Circuit court waited to issue its ruling until open enrollment for ACA insurance coverage closed early morning Wednesday.
"It was quite interesting and not coincidental that the decision was not issued until yesterday. I think quite consciously there was a decision about not interrupting enrollment," Zall said.
"From a payer perspective, the next year, nothing's going to change. In the short term, it's good news. In the long term, three, five years out, the uncertainties aren't good things."
Head of Proskauer's healthcare group
Credit ratings agency Moody's determined Wednesday's ruling has "no immediate credit effect" for payers or providers, though a "future ruling that finds the entire law unconstitutional would be credit negative," according to Dan Steingart, VP and senior credit officer at Moody's Investors Service.
"In the short term, it's good news," Zall concluded, though "the uncertainties aren't good things."
Despite the reprieve, the payer lobby decried the ruling, which could undermine one of the bedrocks of the American health insurance system and threatens their bottom lines.
"The district court's original decision to invalidate the entire ACA was misguided and wrong — and if the district court reaches the same conclusion as before, it will be misguided and wrong again," AHIP president and CEO Matt Eyles said in a statement. "The good news is today's decision will not affect anyone's coverage or care for the foreseeable future."
The case will almost certainly end up before the U.S. Supreme Court, legal experts say. It's just a question of when.
California Attorney General Xavier Becerra, leader of the blue state coalition defending the ACA, said Wednesday the state "will move swiftly to challenge this decision" and file cert, allowing the Supreme Court to review whether it wants to take on all or part of the case.
A complete repeal of the law would strike coverage from roughly 20 million Americans, and millions more could experience huge premium increases, spikes in out-of-pocket costs, and denials based on their health status, according to the Commonwealth Fund. It would also wreck havoc on managed care organizations like Anthem, Cigna, Centene and Molina that have found success in the ACA marketplace and expanded their footprints there.