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Hospitals Could Suffer From Public Plan

Cheryl Clark, for HealthLeaders Media, September 16, 2009

The financial impact of a public plan on private insurance premiums depends in large part on how many currently insured enrollees are allowed to migrate to a government exchange, according to a report published yesterday in the online edition of the journal, Health Affairs.

On the plus side, the rapid increase of uninsured people in a government-run plan, with no enrollment of those who currently have private insurance, would be a big win for hospitals that now must pay costs of caring for the uninsured from other funding sources.

"However, as the privately insured enroll in the public plan in rising proportions, this positive effect is eventually reversed, and hospital patient revenue margins decrease," the report warned.

The study was conducted by Allen Dobson and colleagues of Dobson DaVanzo and Associates LLC, and was co-funded by America's Health Insurance Plans, which is adamantly opposed to a public plan. However in a disclosure, the authors noted, "The study was completed under contract between AHIP and Dobson DaVanzo and Associates" and "none of the authors has an individual financial interest in, relationship with, or affiliation with AHIP outside of the contract."

The study, which included five scenarios illustrating various impacts on hospitals, was based on statistics from 282 California hospitals, including 91 that receive disproportionate share funds through contracts with the state. It excluded federal, Kaiser, and state psychiatric facilities.

Financial data was obtained from Office of Statewide Health Planning and Development, a California state agency whose data is "widely recognized as among the most complete and robust publicly available all-payer health finance data."

"California contains more than 10% of the U.S. population, and its healthcare system has often indicated trends to come in the rest of the nation–from the growth in managed care in the 1980s to the rapid increase in the number of uninsured people in the 1990s."

The problem is that reimbursements to care for patients in a public plan are not likely to cover much more than costs, the authors wrote.

"Predictions about the number of privately insured people who will enroll in a public plan vary greatly," the report said. Key unresolved issues include the size of employers allowed to access the national insurance exchange, the shape and scope of "play or pay" provisions for employers, and whether the government-run plan will pay at Medicare rates or a negotiated rate.

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