The comprehensive legislation removed the requirement that all Americans purchase health insurance. What impact will it have on disproportionate share hospitals going forward?
Passage of the Republican tax reform bill included a provision to remove the individual mandate penalty, a key aspect of the Affordable Care Act, also known as “Obamacare,” which will have a significant impact on how hospitals care for more uninsured patients.
The bill did not repeal the individual mandate but gutted the penalty for Americans without insurance, which in 2017 was either a $695 fine or 2.5% of their income, whichever amount was greater.
The decision is expected to increase the uninsured population by 4 million in 2019, according to a CBO report released last month. The number of uninsured Americans is expected to rise by 13 million by 2027 as young adults drop out of the market without the mandate penalty.
With a higher uninsured rate, health system leaders must now address how to care for a larger population lacking insurance coverage. The long-planned reduction of federal payments to disproportionate share hospitals (DSHs) poses an additional challenge.
Currently, CMS administers payments to DSHs which predominantly tend to low-income patients including those without insurance. The Urban Institute estimates 35% of uncompensated care costs, the total amount of healthcare provided with no payment received, are covered by the federal government.
Federal DSH spending rises with uninsured rates
The funding formula for both Medicaid and Medicare DSH payments is based in part on a state’s uninsured rate. The Medicaid DSH formula specifically relies on how well the state directs payments to hospitals with high volumes of Medicaid inpatient utilization, and how well the state directs payments to hospitals with high levels of uncompensated care.
Federal DSH spending totaled $12 billion during fiscal year 2016, according to the Kaiser Family Foundation. In its November analysis, the CBO estimated a $44 billion increase in DSH payments would be needed over the next decade due to the individual mandate repeal.
Jack O'Brien is the finance editor at HealthLeaders, a Simplify Compliance brand.