The affordable care act lives on

The Supreme Court dismissed the latest challenge to the seminal legislation that has expanded health care coverage in the US over the past decade. Research Analyst Rich Carney explains what it means for the health care sector.

Key takeaways:

• The US Supreme Court dismissed the latest challenge to the Affordable Care Act (ACA), minimising the risk of disruption to the health care system.
• While the road leading up to the decision was marked by volatility in health care stocks, the outcome was largely expected.
• With Democrats maintaining a slim majority in Washington, DC, and more people signing up for coverage through the ACA, we believe lawmakers will work to expand the law’s reach, with potential benefits for health care.

Die another day – or maybe never. On Thursday, the U.S. Supreme Court dismissed the latest challenge to the Affordable Care Act (ACA), the seminal legislation signed into law in 2010 that expanded health care access in the U.S.

In a 7-2 vote, the justices ruled the plaintiffs did not have legal standing to challenge the ACA, ending yet another attempt to “repeal and replace” the legislation. While the odds of the ACA being overturned were low from the start, the road to the court’s decision took several turns.

The market reacts

The long view: a win for health care

In our view, the larger impact is that the court’s decision now reduces uncertainty about the future of the ACA, which provides medical coverage for 31 million Americans.³ We expect the legislation will not only survive but expand. In March, Congress passed the $1.9 trillion American Rescue Plan Act, which included additional subsidies for those buying coverage through the ACA’s individual market. During a special three-month open enrollment period that launched in mid-February, one million Americans signed up. The expanded subsidies expire at the end of 2022, but Democrats are seeking to make the financial support permanent.

We think the Biden administration will continue to strengthen the ACA, including encouraging states that have not broadened Medicaid eligibility under the law to do so. (Medicaid is the nation’s public health insurance program for people with low income.) As such, some health care stocks could endure less volatility: the more that people become insured through the ACA, the less political will there’ll likely be to repeal the law. Furthermore, the ACA’s expansion could benefit health care providers that help administer plans while demand for medical devices, prescription drugs, and health care services and products could rise.

The ACA is not without fault and has created pathways to limit drug prices and payments to hospitals and other providers. But there would be a significant cost of overturning the law, which now touches almost every part of the U.S. health care system and provides coverage for millions of people. We believe that justifies letting the legislation live another day.

¹Bloomberg, as at 21 September 2020.

²Bloomberg, as at 17 June 2021.

³“Health Coverage Under the Affordable Care Act: Enrollment Trends and State Estimates,” Office of the Assistant Secretary for Planning and Evaluation, U.S. Department of Health and Human Services, 5 June 2021.