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New drama for ACA, health insurers after federal judge rules against reform law

It is business as usual for insurers offering plans on Affordable Care Act exchanges right now, but the market could be flung into chaos if high courts agree with a recent decision ruling the entire health reform law unconstitutional.

A federal judge in Texas late on Dec. 14 struck down the entire law, ruling that because the individual mandate's tax penalty was reduced to zero by Congress in 2017, it essentially nullified the rest of the act. In his 2012 decision upholding much of the ACA, Supreme Court Chief Justice John Roberts argued that the law was constitutional because Congress has the authority to tax U.S. citizens. With the tax penalty removed, Roberts' decision is moot, according to the new district court ruling.

The law remains in effect as the case winds through the appeals process, however, because the Texas judge's decision was issued without an injunction. While there will be no change to policy or operations for insurers in the near term, the ruling opens up the possibility of the ACA being completely dismantled, said Christen Linke Young, a Brookings Institution health policy fellow.

Young said that scenario could wreak havoc on the entire healthcare industry because certain regulatory changes, such as the elimination of cost-sharing reductions, expanded access to short-term health plans and the elimination of the individual mandate have been baked into premiums. If the law were to completely fall, longer-term planning would be that much harder, Young said in an interview.

"It's much harder to hedge against, because it's either the status quo will continue, or there will be complete chaos in everything, where it will be totally unclear what rules apply," Young said.

Centene Corp. Chairman and CEO Michael Neidorff's company has sought to reassure investors and consumers that its health insurance products will remain unchanged, even if the law is ultimately ruled unconstitutional by higher courts. The company recently announced to its members that it would roll out a new product with the same level of coverage at the same price to help members "relax," Neidorff said.

"We feel an obligation to try and protect our members in the system," he said in an interview. "This judge and others do not seem concerned what it would be like to ... have a pre-existing condition and then find out you don't have insurance that covers it."

Centene's shares fell nearly 6% in the first two hours after the opening bell on the first trading day after the judge's decision was announced. Peers Anthem Inc. and Molina Healthcare Inc. also saw their stocks move lower in that session.

It seems likely that this case will eventually make its way to the U.S. Supreme Court, but that process could take considerable time.

"The ultimate effect on the health insurance industry of Friday's federal court ruling that deemed the Affordable Care Act (ACA) unconstitutional is unclear, and what is expected to be a lengthy appeals process will follow," Fitch Ratings said in a report.

The demise of the ACA, however unlikely, could be a net positive for online health insurance broker eHealth Inc., according to Cantor Fitzgerald equity analyst Steven Halper. As individuals with policies on health insurance exchanges get bumped off, they will have to look elsewhere for coverage. Prior to the ACA's passage, 17 million Americans bought individual health insurance and are likely to do so again with or without the law, said Halper.

"Some people will go back to buying whatever is available on the market," he said.