The Costs of Healthcare

Fitch: Senate Healthcare Bill Has Mixed Impact on Insurers

Overall, Senate, House versions are broadly similar

Market analysis from Fitch ratings. Visit

Fitch Ratings-Chicago/New York-23 June 2017 — The U.S. Senate’s draft healthcare reform legislation has mixed implications for health insurers relative to the American Health Care Act (AHCA) passed by the House of Representatives in May, but is broadly similar overall, Fitch Ratings says.

Notable differences in the Senate’s Better Care Reconciliation Act of 2017 (BCRA), announced yesterday, are more generous tax credits for individuals designed to replace ACA subsidies, a one-year extension of the phase-out date for the current Medicaid funding mechanism, and different Medicaid inflation adjusters. Additionally, the Senate bill does not contain clauses that would let individual states waive community rating regulations.

The credit implications of the differences between the bills are mixed. The Senate’s more generous tax credits are likely to be credit-positive for health insurers as they would be closer to subsidies currently provided by the ACA and would more significantly reduce the out-of-pocket cost to consumers of health insurers’ products.

However, the inability of health insurers to divert from current community rating regulations under the Senate bill is credit-negative because it would prevent insurers from adopting the enhanced risk-based pricing differentiation available under the House bill.

Mixed bag for Medicaid

with such sweeping legislation, unintended and unforeseen consequences are likely to create uncertainty over the ultimate net effect on health insurers

Differences between the Senate and House bills are also likely to have mixed credit implications on Medicaid business. The Senate bill’s one-year extension of the current Medicaid funding mechanism is a modest positive since it gives health insurers and states an additional year to adapt to the legislation’s changes. However, over the longer term the Senate bill could provide lower funding levels given its lower inflation adjuster.

The credit profiles of large diversified health insurers are unlikely to be significantly affected by the Senate’s or House’s legislation. However, smaller less diverse players could be materially affected over the long term by some proposals, particularly health insurers that focus on the Medicaid market. Additionally, with such sweeping legislation, unintended and unforeseen consequences are likely to create uncertainty over the ultimate net effect on health insurers.

Fitch expects the effects of both the BCRA and AHCA would be more heavily felt by the individual and Medicaid markets rather than employer group sponsored market. Individual and Medicaid business represents fairly small proportions of membership and revenues for most of the health insurers we rate.

Under both the Senate and House bills, changes to Medicaid funding to rely more on per capita and block-grant funding are likely to put pressure on state budgets and adversely affect Medicaid-focused insurers. However, these adverse effects might be mitigated by states’ desire for budget certainty, leading them to expand risk-sharing with private insurers as part of managed Medicaid programs.