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Moody's says tax law will hurt nonprofit hospitals

Health insurers benefit from lower corporate taxes but repealing the individual mandate will spike uncompensated care costs.

Susan Morse, Senior Editor

The new tax reform law has negative credit implications for non-profit hospitals and healthcare systems, Moody's Investors Service said Thursday.

The repeal of the individual insurance mandate will increase the uninsured population and raise uncompensated care costs, hurting operating margins and cash flow, Moody's said.

[Also: Moody's revises nonprofit and public health outlook to negative as hospitals face rising operating pressure]

The tax bill's effect on for-profit health insurers is credit positive.
For most for-profit health insurers, the lowering of the corporate tax rate from 35 to 21 percent outweighs any negative factors given that current tax rates range from 31 to 39 percent.

The benefit of lower corporate tax rates is at least partially offset by new taxes for insurers. The credit impact on individual insurers will be specific to their circumstances, Moody's said.

[Also: Moody's revises nonprofit and public health outlook to negative as hospitals face rising operating pressure]

For health insurers, the negative impact from the tax law is the repeal of the Affordable Care Act's individual mandate, which will likely reduce stability and raise costs in the individual market for those companies that remain, the report said.

Insurers ceding business to their non-US affiliates in lower-tax jurisdictions will be negatively affected by the new tax law because of higher taxes on premiums.

The tax cuts will make only a modest contribution to the growth of the U.S. economy, about 2-2.5 percent in 2018-19.

The marginally stronger growth will be driven mainly by somewhat higher household consumption resulting from individual tax cuts.

But Moody's said it did not believe that the corporate tax cuts would meaningfully increase business investment spending. The tax changes will be modestly positive for stock prices, given the resulting higher after-tax corporate earnings, the report said.

Twitter: @SusanJMorse
Email the writer: susan.morse@himssmedia.com

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