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January 21, 2015

CHS’ Wayne Smith, analysts on the Obamacare subsidy case and the Supreme Court

CHS’ Wayne Smith, analysts on the Obamacare subsidy case and the Supreme Court
by Eleanor Kennedy | Nashville Business Journal | Jan 21, 2015
The Nashville Health Care Council’s annual “Wall Street” panel Wednesday kicked off with a discussion of one of health care’s biggest unknowns for 2015: How will the Supreme Court rule in the upcoming Obamacare subsidies case?

If you’re not familiar with King v. Burwell, it’s one of a handful of cases in which plaintiffs argue the federal government does not have the authority to offer subsidies to consumers who purchase coverage through the health insurance exchange because the Affordable Care Act says subsidies can only be given in exchanges set up by the state. At this point, only 14 states run their own exchanges, and the majority of Obamacare enrollees have qualified for subsidies. That means if the Supreme Court, expected to rule on the issue this summer, finds the subsidies are indeed illegal, millions of people’s ability to pay for their coverage could be thrown into question.

“Clearly this is an issue that affects everyone,” Wayne Smith, CEO of Community Health Systems and the panel’s annual moderator, said as he teed the question up to the panel of industry analysts. “Everyone has an interest in solving this. No one wants to take health insurance away from 6 or 8 million.”

Luckily for the “everyone” Smith is referring to, the panelists were unanimous in their conclusion that even if the court rules “the wrong way,” workarounds will be found.

That said, the six months between now and when the court’s decision comes out will see renewed “uncertainty” for an industry that had begun to reap positive effects from reform impacts.

“Markets hate uncertainty,” said A.J. Rice, managing director with UBS financial Services, and the subsidy issue “looms out there” at an otherwise positive time for hospital stocks.

But even if the subsidies are taken away, Darren Lehric, a managing director with Deutsche Bank Securities, worked out some quick math to prove hospital company earnings wouldn’t take too big a hit.

According to Lehric, the major investor-owned hospital companies (including locally-basedHCA, Community Health Systems and LifePoint Hospitals) get about 50-60 percent of their ACA benefit from the exchanges, on average. About two-thirds of that comes from federally facilitate marketplaces – the ones at risk from King v. Burwell. That means those hospital companies would see only about a 4 percent hit to EBITDA (earnings before interest, taxes, depreciation and amortization), Lehric said.

As to the decision itself, all of the panelists strayed away from predicting how exactly the court will rule. While Rice argued most of the “substance” related to the law’s discussion indicates a clear assumption that subsidies would be available no matter the marketplace,Joshua Raskin, a managing director with Barclays Capital, harkened back to the 2012 decision that made Medicaid expansion optional for states – something no one would have predicted, he argued.

“I think we’re probably wasting our time trying to handicap what’s going to happen here,” Raskin said.

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