Morningstar - Q1 2021 - 31

EXHIBIT 1

However, if the entire law is struck down by
the court and Congress does not reinstate
at least some major ACA channels to increase
insurance access (also highly unlikely, in
our opinion, given the popularity of the law),
millions of Americans would lose health insurance,
including Medicaid expansion and the
individual exchanges. This scenario could have
negative effects for pockets of the healthcare
industry, such as managed-care companies
with significant Medicaid and individual exchange
exposure like Centene CNC and hospitals
like HCA Healthcare HCA and Tenet Healthcare
THC. If the ACA is struck down without an
adequate replacement in this scenario, we see
downside risks of 35% at Centene, 25%
at Tenet, and 15% at HCA from our fair value
estimates. The earnings power of other
managed-care providers could be mildly affected,
as well, but based on our analysis, we do
not think they would be material to valuation.
Biden's Plan

Given the narrow margins in the government
and the political dynamics in Washington,
D.C., we expect the status quo for the
healthcare industry under the Biden administration.
As we mentioned above, Biden could
rescind some of Trump's executive actions that
curtailed the use of the ACA, but from
a fair value and moat perspective, these changes
would have minimal effects on healthcare
companies.
However, the national debate over healthcare will
not go away, and according to polls, most
Americans want universal, affordable coverage.
Therefore, it's worth discussing some of Biden's
bolder proposals to expand the insured
population, which would create a spectrum of
opportunities and risks for healthcare players
( EX H I B I T 1 ). Biden wants to build on the
existing U.S. healthcare system to pursue further
reforms, not overhaul it.4 He estimates that
at least 97% of Americans would be covered under
his proposals, up from about 91% before the
coronavirus pandemic and associated weakness
in the U.S. employment market.

Potential Impact of Biden's Plan Biden says his proposals would increase coverage
to 97% of Americans.
Affected
Americans (Mil)

% of Total
Americans

Exchange Tax Credits

6 to 16

2 to 5

Budget Neutrality

Further Medicaid Expansion

5 to 13

2 to 4

Budget Neutrality

Public Option

6 to 16

2 to 5

Substantive + Budget Neutrality

1 to 2

<1

Substantive + Budget Neutrality

Lower Age of Medicare Eligibility to 60

Legislative Process Concerns

Sources: JoeBiden.com, Morningstar.

Of the proposals in Biden's plan, a public option
has the most potential to significantly change
the U.S. healthcare system. In its boldest form,
a public option would create a governmentsponsored competitor to employer-sponsored
insurance and the individual exchanges
that are currently controlled by private insurers.
Biden aims to introduce a public option
based on an existing government-sponsored
insurance program, such as Medicare. Through
that plan, along with enhancing some of
the policies already introduced by the ACA, Biden
wants to approach universal coverage.
Below are some tenets of Biden's healthcare
plan that we believe would have the most impact
on the U.S. system. For most of these to have any
chance of passing through a divided Congress,
Biden would have to use the budget reconciliation
process, which only requires a simple majority.
Biden would give Americans access to affordable
healthcare insurance by:
gIncreasing tax credits to lower the costs associated
with coverage on the individual exchanges.
We estimate this change could affect 6 million
to 16 million Americans.
gExpanding the Medicaid population by applying
the eligibility rules of the ACA to all states,
even those that opted out of Medicaid expansion.
(Twelve states have not expanded or do not
plan to expand in the near future.)
Insurers have also floated the idea of using
passive enrollment for this program, which would

extend access even further and could be
a point of compromise in the legislation to appeal
to private industry. Further Medicaid
expansion could affect about 5 million to
13 million Americans.
gAdding a public option with no deductible
to the U.S. healthcare system.
This could help an additional 6 million to 16 million
Americans obtain coverage, by our estimates.
It would represent a substantive change (above
and beyond the current Medicare program)
and could create some negative budgetary effects
in the long run that may make employer tax
penalties necessary to offset the cost of the public
option for employees who use it instead of an
employer's plan.
gLowering the age of eligibility for Medicare
to 60 from 65.
This could add 1 million to 2 million Americans
to the insurance rolls on a net basis, by our
estimates. It's a substantive change that would
need budgetary offsets.
The Public Option

Although the probability of a public option that has
a high impact on the industry becoming law
is low, there is a wide range of possible outcomes
within a public option proposal. Several areas of
compromise are possible that would limit a public
option's impact on industry players.
First, it would depend on who would be allowed
to use the public option. For budgetary reasons, for
example, the public option may not be fully

4 Biden-Sanders Unity Task Force. 2020. Biden-Sanders Unity Task Force Recommendations. July 8, 2020.

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31
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