States' Credit Quality Threatened by Obamacare Ruling, S&P Says

(Bloomberg) -- A federal judge’s ruling Friday that Obamacare is unconstitutional poses a threat to the credit quality of some U.S. states, as well as to hospitals and insurance companies, S&P Global Ratings warned.

States that expanded Medicaid under the Affordable Care Act -- the signature health-care overhaul under President Barack Obama -- could lose billions of dollars in federal money and could face significant costs if they try to keep coverage for people newly-covered by the program, S&P said in a release Monday. Certain providers of substance abuse treatment, emergency services and mental health services could also be negatively impacted.

"We expect the withdrawal of federal funding flows would have an incrementally negative impact on regional economies, which are already poised to see economic deceleration as the effects of the fiscal stimulus from the tax cuts begins to fade," S&P said.

U.S. District Judge Reed O’Connor in Fort Worth agreed with a coalition of Republican states that the law needed to be eviscerated after Congress last year zeroed out a key provision -- the tax penalty for not complying with the requirement to buy insurance.

The ruling casts uncertainty on insurance coverage for millions of U.S. residents. If it’s upheld, tax-exempt hospitals and health-care systems could see "a broad diminution in credit quality over time" as they face higher costs from patients that can’t pay their medical bills, S&P said in its report.

"In the near term, if the ruling were upheld, the loss of ACA-driven health insurance would eliminate the expanded Medicaid coverage that the ACA provided and hurt the individual market for health insurance that has helped millions of Americans," S&P said.

It’s unlikely that a split Congress could reach consensus on reforming U.S. health care, the report said. "In our view, the demise of the ACA would become the number one issue in the 2020 presidential election," it said.

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