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Employer Mandate Delay Hurts NFP Hospitals' Credit Outlook

 |  By John Commins  
   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."

 

Shawn Gremminger
director of Legislative Affairs for America's Essential Hospitals

The delay irked the American Hospital Association, which called the move "yet another setback for those uninsured individuals who will not gain coverage through their employer. With the level of coverage envisioned when the ACA was originally passed not being met, it is critically important to mitigate some of the reductions included in the ACA, such as elimination of the Medicare Disproportionate Share Hospital program cuts for the next two years. This will provide relief to hospitals who continue to provide care to large numbers of the uninsured until coverage expansions can be more fully realized."

Shawn Gremminger, director of Legislative Affairs for America's Essential Hospitals, echoed the AHA's comments, but said that some concessions from Congress may soften the blow for safety net hospitals.

"Medicaid DSH cuts were scheduled under the ACA starting in fiscal 2014 and going out into the future. We were able to secure a change to that, which would be a one-year elimination of the cuts in 2014. Those cuts are no longer there. The 2015 cuts are delayed by a year so they are added on to the cuts that included in fiscal 2016," he says. "Basically, the good news is that at least in the short term, for the rest of this year and into fiscal 2015 we are not going to see any cuts to DSH."

"We think that will be helpful when it comes to helping to cover uncompensated care for a number of reasons. The biggest reasons that we see higher uncompensated care than we originally expected was the partial Medicaid expansion. There was an assumption from the very beginning that we would see a 50-state Medicaid expansion. Now that that is not happening we are literally looking at millions and millions of people who were assumed would be covered but who are not."

The delay in the DSH cuts gives safety net hospitals some breathing room. However, Gremminger says that starting in 2016 hospitals must brace for about $1.2 billion in cuts in federal spending.

"A lot is going to happen between now and October 2015 when those cuts go into effect. Our association is going to have to continue to fight this fight," he says.  

In addition, Gremminger says, hospitals are grappling with the 2% cuts mandated by sequestration that will remain in effect until 2021. "Luckily, our sequestration exempted Medicaid from those cuts and Medicaid is a huge payer for us because we disproportionately treat low-income people," he says.

"But we are very concerned about the affect of sequestration. Two percent doesn't sound like a lot but when you are looking at safety net hospitals which last year had margins that were around or less than 2% it doesn't take a whole lot of cuts to get us right back down to zero and there is a significant portion of our membership that lost money in the last couple of years. There are only so many cuts that you can take."

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.

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