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Employer Mandate Delay Hurts NFP Hospitals' Credit Outlook

John Commins, for HealthLeaders Media, February 27, 2014

The delay in the employer mandate "causes a timing mismatch between the benefit of fewer uninsured patients and the negative impact hospitals face related to reduced payment updates and cuts to Medicare and Medicaid DSH," says Moody's Investor Services.

Postponing the Affordable Care Act's mandate for mid-sized employers for a second time is a "credit negative" for not-for-profit hospitals because it delays expanded coverage for previously uninsured patients and the corresponding reduction in bad debt and charity care, Moody's Investor Services says.

The delay announced this month by the Obama administration gives companies with 50 to 99 employees until 2016 to offer insurance for their employees of face fines. The 2010 law originally required mid-sized employers to provide coverage beginning this year or face a $2,000 fine for each employee. The Obama administration last year delayed the employer mandate until 2015.

"The employer mandate is vital to hospitals because it offsets the costs of the ACA, which include agreed-upon cuts to Medicare Disproportionate Share money and existing rate cuts that are hardwired in the annual Medicare updates," Moody's said.

"Hospitals are facing more than $300 billion in reductions to Medicare payments through 2019 as a result of healthcare reform. This loss of revenue is meant to be balanced by the reduction in uninsured patients. The delay in the employer mandate causes a timing mismatch between the benefit of fewer uninsured patients and the negative impact hospitals face related to reduced payment updates and cuts to Medicare and Medicaid DSH. Hospitals most negatively affected by the delay in the employer mandate include those with a high percentage of their revenues derived from Medicaid, which will be subject to the highest DSH cuts without the benefit of fewer uninsured patients and reduced bad debt."

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