Trump Budget, Revised AHCA, Credit Negatives for NFP Hospitals

The one-two punch of massive cuts to Medicaid that are proposed in both the new budget and the House Republicans' revised American Healthcare Act would result in cuts of close to $1 trillion over 10 years, analysis shows.

Cutting Medicaid by more than $860 million over the next decade would be a credit negative for states and not-for-profit hospitals, both of which would be left scrambling for alternative funding to cover the loss, according to a new report from Moody's Investors Service.

Last week the Trump administration unveiled a budget proposal that includes $610 billion in cuts to core Medicaid services, and an additional $250 million in reductions to Medicaid expansion programs created under the Affordable Care Act.

The following day, the Congressional Budget Office released its scoring of the revised American Health Care Act – the Republican plan to repeal and replace the Patient Protection and Affordable Care Act and estimated that it would reduce Medicaid spending by $834 million through 2026.

"The proposals significantly change the longstanding Medicaid financing system and are credit negative for states and not-for-profit hospitals," Moody's said in an issues brief.

For states that don't have the luxury of ignoring budget imbalances, the changes would increase pressure to either kick people off Medicaid, increase the state share of Medicaid funding, or cut payments to hospitals and other providers, Moody's says.

Hospitals, particularly those serving a high mix of Medicaid patients, could expect to see reimbursement cuts and more cases of uncompensated care as Medicaid patients lose the coverage they'd gained under the ACA's expansion.

Medicaid is already a significant budget burden for states, consuming between 7% to 34% of state revenue and averaging 16%.

Under the ACA, bad debt expense at not-for-profit hospitals in states that expanded Medicaid eligibility declined on average by 15% to 20% since 2014, enhancing these hospitals' cash flow. Similarly, the gains in insurance coverage lowered the nationwide uninsured rate to approximately 11%, with uninsured rates even lower in states that expanded their Medicaid rolls, Moody's says.

"Although the budget would give states limited new flexibility to adjust their Medicaid programs, the measure overall reflects a significant cost shift away from federal funding to states," Moody's says. "This cost shift is significant and would force states to make difficult decisions about safety-net spending for hospitals that serve large numbers of indigent patients."

The CBO also estimates that 23 million people who are now insured under the ACA would lose their coverage by 2026 under the AHCA as it was passed by U.S. House Republicans earlier this month. "(That) would be credit negative for not-for-profit hospitals because they would increase their bad debt and uncompensated care costs," Moody's says.

More Bad News for the Poor

Another Trump administration budget proposal forces states to share the costs of SNAP, the Supplemental Nutrition Assistance Program. The federal government now covers all of the benefit costs of the program, while states pay to administer it. The budget proposes to shift 25% of the benefit costs to states, totaling $190 billion by fiscal 2027, Moody's says.

The Trump budget was widely panned immediately after it was unveiled. Bruce Siegel, MD, president/CEO of America's Essential Hospitals, accused President Trump of reneging on his campaign promise to protect Medicaid.

"We remind him now of that promise and ask that he work with us and all stakeholders on policies that modernize and improve federal health programs and ensure no American suffers from lack of access to affordable care," Siegel said in prepared remarks.

"The magnitude of cuts to healthcare programs and agencies in this budget would undermine important work to protect communities of all stripes from existing and emerging health threats, such as opioid addiction, infectious diseases, and chronic conditions," Siegel said.

"The cuts would limit research, putting lifesaving therapies farther out of reach, and drive hospitals and other providers to scale back basic and specialized services."

Democratic and Republican observers in Congress give it little chance of surviving Congress.

The revised AHCA, also widely panned by hospital, physician, patient, and payer associations, is also expected to undergo significant revision, if not an outright ground-up rebuild, as the Senate takes it up. In particular, Democrats and Republicans in the Senate have expressed strong opposition to any proposal that significantly cuts access to affordable health insurance.