Supreme Court Ruling to Uphold ACA

In a 7-2 decision, the U.S. Supreme Court voted to uphold the Affordable Care Act. This was largely expected by us and, in our opinion, the rest of the market. This time around, the court ruled that the complaining parties were not sufficiently harmed by the ACA's individual mandate, which was reduced to $0 by the Republican-controlled Congress as part of tax legislation in 2017. Because this court's ruling (or one based on the severability of the individual mandate from the rest of the ACA) was largely expected by us, we are making no changes to our moat ratings or fair value estimates for the narrow-moat health insurers we cover: Anthem ANTM , Centene CNC , Cigna CI , CVS CVS, Humana HUM, and UnitedHealth UNH. However, the ruling does add some certainty around this law that touches so many parts of the U.S. healthcare system.

Most important, this ruling means that ACA-related programs, such as the individual exchanges and ongoing expansion of Medicaid, will continue. As the leading Medicaid managed-care organization and provider of plans on the individual exchanges, Centene would have been most affected by a ruling that eliminated those ACA programs. Instead, this ruling clears the way for efforts to increase the insurance rolls in the U.S., which are largely based on these ACA programs. For example, the American Rescue Plan Act of 2021 temporarily extended tax credits to cap the amount of household income that could be spent on the individual exchanges to 8.5% for all individuals (not just those who made up to 400% of the federal poverty level, which was initially part of the ACA). That improved affordability is attracting new individuals to the exchanges during the ongoing sign-up period. Similarly, in the American Rescue Plan Act, carrots were extended to nonexpansion states to expand their Medicaid populations through ACA-related initiatives. Through another budget reconciliation bill that will likely be brought to Congress this fall, these initiatives could be extended permanently.

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