By Leslie Small

On Dec. 14, a federal judge sent shockwaves into the health care sector by ruling that the entire Affordable Care Act is unconstitutional. While few legal experts expect the ruling to survive scrutiny by higher-level courts — and note that the law will remain intact as that legal process plays out — industry analysts are nevertheless warning that some insurers would be hit hard if the ACA is struck down.

The long-awaited decision concerns a lawsuit filed by 20 Republican state attorneys general in February, which argued that Congress’ elimination of the tax penalty associated with the individual mandate renders the entire ACA invalid. In his decision, U.S. District Court Judge Reed O’Connor agreed with that argument, going further than the Dept. of Justice’s stance that only the ACA’s protections for people with pre-existing conditions should be struck down.

If the higher courts do uphold O’Connor’s decision, “the impact will be significant,” Standard & Poor’s analyst Deep Banerjee wrote in a Dec. 17 report. In the absence of the ACA, some states might try to implement their own health care marketplaces, but without federal funds, both the subsidy-eligible market and the Medicaid expansion market “will see a meaningful increase in uninsured rates,” he noted.

“For health insurers, this would mean lower revenues and earnings from those business segments,” Banerjee said. “Insurers that are heavily concentrated in the individual and Medicaid markets without much diversification from Medicare and employer-based commercial markets would be hit hardest.”

Centene Corp. and Molina Healthcare’s earnings will be “meaningfully exposed” if O’Connor’s ruling is upheld on appeal, Leerink analyst Ana Gupte advised investors on Dec. 17. Both Anthem, Inc. and WellCare Health Plans, Inc. would have 3% earnings exposure if the ACA disappears, Gupte added, while Cigna Corp. has “very low single-digit earnings exposure,” UnitedHealth Group has 1% of its earnings at risk, and Humana Inc. has no exposure.

As for how the suit will ultimately fare, most legal experts “have long felt that the legal arguments advanced by the challengers are weak,” Christopher Condeluci of CC Law & Policy wrote in a Dec. 15 message to clients. “Based on this belief, I think most legal experts — including me — still feel that this legal challenge will fail at some point during the judicial process.”