The Affordable Care Act is bringing notable financial boosts to insurers and providers alike, buoying traditional revenue lines, but the long-term cost pressure means both groups have to adapt to new business models.
Based on this year's financial results, the ACA seems to be invigorating top lines for providers and spurring growth for insurers, argue Standard & Poor's analysts Tulip Lim and colleagues in a recent report.
"We believe these trends will likely continue in 2015 as the federal/state insurance exchanges mature and more states potentially expand Medicaid coverage," they wrote.
"Longer-term, though, we expect healthcare reform will ultimately hurt providers that are unable or unwilling to adapt and medical cost trends will eventually catch up with insurers that lack pricing power and scale."
Despite the tangible growth in revenue from an influx of newly-insured Americans, for-profit health systems and insurers are sending "mixed messages" on healthcare utilization and cost trends.
"Several of the for-profit hospital companies are pointing to admissions improvements and rising acuity," they wrote. "Meanwhile, insurers are painting a generally benign view of current year cost trends but they continue to price their products for more of an uptick."
Despite these cautions, S&P is maintaining a stable outlook for insurers, assuming they can sustain "a moderate level of temporary earnings strain in 2014 to 2015." Providers are a somewhat different story, depending in part on their payer mix and their location, if they're in states where Medicaid eligibility is not being expanded and uninsured patients continue to draw resources.
Between reductions to the Disproportionate Share subsidies and continued reimbursement pressure, hospitals generally are receiving a negative outlook from S&P.
Among nonprofit health systems and standalone hospitals, the cost pressure is much the same. Median rations for nonprofit health systems declined in 2013, with expense growth outpacing revenue gains, according to another recent S&P report.
The weak margins have been offset by strong investment returns and pension funding, but the challenges of long-term cost and revenue uncertainty in the future are real, argues S&P analyst Margaret McNamara.
"We believe the sector is at a tipping point where negative forces have started to outweigh many providers' ability to implement sufficient countermeasures."
The one certainty, according to S&P, is that pharmaceutical prices will continue to rise, particularly for specialty drugs.