Hospitals Face Steep Cuts Even If Republicans Have Alternative to Subsidies

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By Nathaniel Weixel

March 4 — Hospitals will need to lobby hard to convince Congress to extend tax subsidies for the millions of Americans who would lose insurance coverage if the U.S. Supreme Court rules against the government in King v. Burwell, health-care analysts told Bloomberg BNA.

But even if lawmakers can come up with a short-term fix, hospitals will still face steep cuts to Medicare reimbursements that were included in the Affordable Care Act without the trade-off of a larger insured population.

House and Senate Republicans have released outlines of how they plan to make sure Americans aren't negatively affected by the loss of subsidies to purchase insurance in federally run insurance exchanges if the government loses its case. The plans were light on details, but both would either extend the subsidies for an unidentified “transition period” or provide advanceable tax credits consumers could use to purchase insurance themselves.

‘Chaos' for Hospitals

But if Congress doesn't have a contingency plan ready, “it will be chaos” for hospitals, Dan Mendelson, chief executive officer of consulting group Avalere Health, told Bloomberg BNA. If King prevails, Mendelson said he expects virtually all customers in the affected exchanges would see their premiums rise. The loss of subsidies would make those people exempt from the individual mandate, so many would just go uninsured, he said.

According to an Avalere analysis, 87 percent of federal exchange customers currently receive a subsidy, with the credits paying for 72 percent of their premium on average. As a result, if the court declares subsidies illegal in federal exchange states, average monthly premium contributions for enrollees could increase between 122 percent and 774 percent, depending on the state, Avalere found.

The Supreme Court heard arguments March 4 on the ACA case challenging whether subsidies that help an estimated 7.5 million people pay for health insurance through the federal marketplace are legal nationwide. A decision is expected in June.

Steep Medicare Cuts

Hospitals are already pressuring lawmakers not to cut their Medicare and Medicaid reimbursements further, especially when it comes to paying for policies such as the Medicare sustainable growth rate. If people lose insurance, hospitals would lose, too.

“Hospitals keep their communities healthy and productive,” the American Hospital Association said in a March 4 statement. “The loss of subsidies for health insurance would be a major setback to achieving these goals. Affordable health insurance is essential to improving the health of any community; loss of subsidies would make insurance unaffordable to working families.”

H. Guy Collier, a partner at McDermott Will & Emery LLP in Washington, told Bloomberg BNA the ACA will cut $270 billion in Medicare reimbursements over the next 10 years. The trade-off was supposed to be an increase of 30 million to 32 million newly insured people. But if subsidies are cut, that number could get reduced drastically without any corresponding change in the payment cuts.

Even if Congress extends subsidies for a year, or 18 months, Collier said it's just a short-term fix.

“The plan delays things, but at some point, you're not going to have these patients in the system anymore. The problem is still there,” Collier said. Hospitals will need to convince Congress not only to extend the subsidies, but also to “look at the extent of the cuts. Otherwise the math doesn't work.”

‘Untenable' Politics

Joe Antos, a fellow in health-care and retirement policy at the American Enterprise Institute, told Bloomberg BNA that hospitals need to tell lawmakers that providing insurance subsidies isn't just a philosophical argument.

“It's going to cost hospitals a lot of money unless action is taken,” Antos said. The hospitals in the affected states, especially those in rural communities, “will have a hard time keeping their doors open” because of the money lost providing uncompensated care.

Andrew Shin, director of health-care policy and life sciences at ML Strategies in Washington, told Bloomberg BNA once a ruling comes down, Congress will have four to six weeks to enact a contingency plan if one is needed. Hospitals need Congress to fix the law and provide subsidies for all states, or they need a transition plan, Shin said. Congressional Republicans aren't likely to fix the law they oppose so vehemently, but coming up with a viable transition will be a challenge.

“It's an untenable situation,” Shin said. “Republicans need to show stakeholders they don't want to disrupt the health-care marketplace, but they don't want to show voters they support the Affordable Care Act.”

Bipartisan Plan Needed

The other challenge is if Republicans can craft a bill that Democrats would agree with. Shin and Mendelson said it would need to be a bipartisan effort, especially as the far right wing of the Republican Party is unlikely to vote for any bill that could be seen as supporting the ACA.

Shin said he thinks it's unlikely any contingency plan Republicans come up with will be “clean.”

“They'll put ACA whacks in there,” Shin said, which would make it difficult to get Democrats on board.

Senate Finance Committee Chairman Orrin G. Hatch (R-Utah) told reporters March 4 he wasn't sure Republicans would be able to put forth a bill that the president would actually sign.

“I don’t know,” Hatch said. “I doubt it, because they [Democrats] are so caught up in the Obamacare bill, but we will have to try. We don’t want anybody to suffer because of these legal niceties.”

To contact the reporter on this story: Nathaniel Weixel in Washington at nweixel@bna.com

To contact the editor responsible for this story: Brian Broderick at bbroderick@bna.com