Non-Profit Hospitals Will Take Financial Hit If the Individual Mandate is Struck Down

If the Supreme Court overturns the individual mandate that requires Americans to buy healthcare insurance that is contained in the Patient Protection and Affordable Care Act (ACA), non-profit hospitals will struggle with higher costs, according to Moody’s Investors Service.  The individual mandate has become the focus for legal attacks on the healthcare law.  It “would result in a significant reduction in uncompensated care delivered by hospitals” and reduce “utilization of expensive emergency room services,” the rating agency said.

“If the Supreme Court overturns the individual mandate, the private health insurance market would likely weaken under the unbalanced weight of strict provisions to cover all those who seek insurance without the counterbalancing benefit of a new, largely healthy, population segment that would be provided under the mandate,” Moody’s said.  “This scenario could become untenable for many insurers and hospitals, as costs would rise but revenues would not.”

There are additional challenges to non-profit hospitals in the ACA, specifically cuts in reimbursement rates for Medicare and reduction of funds paid to hospitals that serve a disproportionate share of Medicaid recipients, Moody’s said.  “Removing the mandate would make the negative features of reform loom much larger.”  Moody’s said the federal government could turn to a voucher system in which individuals would receive public help for them to buy health insurance, but the results for non-profits hospitals “would be more complex and hard to foresee.”

This is bad news because by a nearly five-to-one margin, hospitals expect the ACA to shrink their revenues. The result suggests that hospital executives are having second thoughts about the deal they made with the Obama administration in exchange for supporting the healthcare overhaul will help them weather the law’s financial repercussions.

According to a recent poll, 55 percent of hospitals and health systems anticipate falling revenues as a result of the law, while 12 percent expect an increase.  Twenty-eight percent were unsure of the law’s effect on revenue, indicating continued concern in the industry over the changes wrought by healthcare reform.  Hospital executives agreed to give up $155 billion in government payments over 10 years in a deal to cap costs borne by the industry as a result of the ACA.  The agreement followed a similar agreement with pharmaceutical companies and enabled the reform.  Two crucial hospital groups — the American Hospital Association and the Federation of American Hospitals — backed the law.  “Hospitals have acknowledged that significant healthcare savings can be achieved by improving efficiencies, realigning incentives to emphasize quality care instead of quantity of procedures,” Vice President Joe Biden said at the time.  “Today’s announcement, I believe, represents the essential role hospitals play in making reform a reality.”

“Hospital and health systems’ financial health has a direct impact on the benefits offered to their employees,” said Maureen Cotter, a senior principal at HighRoads, which took the poll.   “Even though 70 percent of those surveyed stated that they are committed to providing coverage in the long term, and no organizations have plans to discontinue coverage now or in the future, the coverage provided may take a new shape,” Cotter said.

There’s even more bad news in the fact that Howard Dean, a physician who formerly was chairman of the Democratic National Committee, a 2004 presidential candidate and governor of Vermont thinks that the high court will declare the mandate unconstitutional.  Dean believes that Justice Anthony Kennedy’s swing vote will side with the conservative justices when it comes to the individual mandate.  “I do believe that it’s likely the individual mandate will be declared unconstitutional.  Kennedy will probably side with the four right-wing justices. The question is going to be, is this individual mandate question, can that be considered separately from the rest of the bill?  And I think it will be.”

Dean also said the ACA can remain in place without the mandate.  “It’s definitely not necessary for the bill to succeed,” Dean said.  “It was mainly put in by academics who built the program for Governor Romney in Massachusetts, they had did it there, and for insurance companies who will benefit from extra customers.”

According to Dean, “The number of so-called free riders — people who will refuse to get insurance until they get sick — is going to be very, very small.”  Dean noted that the actual benefit of the individual mandate is “relatively small.  Everyone is a libertarian in America, whether Democratic, Republican or independent.  They don’t like to be told what to do by government.”

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