NEW YORK (AP) — Moody's Investors Service said Wednesday that the Congressional deficit committee's recommendations could be good for health insurers while hurting profits for health care providers and drugmakers.
The Congressional "supercommittee" is tasked with identifying at least $1.2 trillion in budget cuts over the next decade. With Medicare and Medicaid comprising a large portion of federal spending, Moody's said the committee members will try to cut some of those funds out of federal health care programs. The firm said cuts could come from four areas: Medicare cost-sharing for seniors, payments to health care providers, prescription drug costs and Medicaid spending.
Moody's said cost-sharing proposals might include raising Medicare premiums for higher-income seniors, altering deductible plans, and eliminating or taxing supplemental Medicare plans. Those ideas would shift more costs to seniors from the government. That could be good for health insurers like UnitedHealth Group Inc., Humana Inc., WellPoint Inc. and HealthSpring Inc. because it might make their Medicare Advantage plans more affordable than traditional Medicare plans.
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The committee might also recommend increasing the rebates that drug companies are required to give to federal health programs or extending the marketing exclusivity period for some biotech drugs. Both could reduce profit and revenue for the drug industry overall. Longer marketing exclusivity periods would benefit companies that make brand-name drugs and hurt the companies that are trying to develop generic equivalents.
Moody's wrote that the government currently reimburses hospitals for about 70 percent of "bad debt" from certain seniors on Medicare. "Bad debt" is debt that is unlikely to be paid back. However the firm said the deficit committee could propose large cuts to those reimbursement payments. Analyst Lisa Goldstein said the committee could suggest cuts of 25 to 45 percent, which would drastically cut profit and revenue for hospitals.
The deficit committee is required to come up with a proposal for cutting the deficit by Nov. 23, and Congress must pass a bill finalizing the proposal by Jan. 23. If that does not happen, $1.2 trillion in automatic budget cuts — including a 2-percent cut in Medicare spending — will go into effect starting in January 2013. Moody's added that home health care companies and non-profit hospitals would feel the largest effect from those cuts.
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