Home>Video>Affordable Care Act Changes May Impact Corporate Credit Risk

Affordable Care Act Changes May Impact Corporate Credit Risk

Mon, 14 Nov 2016

Post-election, uncertainty is expected in the hospital and managed-care sectors, while pharmaceutical and drug supply chain sectors may see a short-term easing.

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Video Transcript

Dave Sekera: Following the election, our healthcare corporate credit analyst team has published a note highlighting the elevated uncertainties to corporate credit risk specific to that sector. While it is too early to gauge the ultimate impact to any specific bond issuer, Julie Utterback, our lead corporate credit analyst for the healthcare sector, expects that the outcome of any efforts to either repeal, replace, or revise the Affordable Care Act could have widespread impacts on corporate credit risk across the sector.

Specifically, hospital and managed-care sectors appear to face the most uncertainty in the near term, and pharmaceutical-related companies may get a short-term reprieve from the recent scrutiny on their pricing practices.

The Senate does not have a filibuster-proof supermajority to repeal the ACA outright, but it can pass reconciliation bills which could significantly alter it. If such reconciliation efforts were to lead to a widespread loss of insurance coverage, it could have negative fundamental implications for hospitals and the medical technology companies that serve them.

However, because of the potential political fallout that could result from the loss of health insurance by a large number of Americans, there is significant incentive to replace or revise the ACA. While we see the potential for less regulation on medical loss ratios as a potential positive to ACA reform on managed-care organizations, one new Republican proposal is to increase insurance competition and portability of coverage across state lines, which could have negative implications for managed-care companies in the long run.

Regarding the pharmaceutical and drug supply chain sectors, there may be a short-term easing regarding pricing concerns; however, government policies to limit pharmaceutical cost inflation remain highly uncertain and variable. For example, some ideas discussed during the campaign may balance drugs costs with value created from industry innovation. So while pricing dynamics may presently be better than they would have been under a Clinton administration, they may not be in the long run. 

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