March 13, 2017

Hospital finances could take a hit under House GOP's ACA replacement, credit rating agencies warn

Daily Briefing

House Republican's legislation to replace the Affordable Care Act (ACA) could be detrimental to hospitals' finances and result in credit downgrades, according to reports from separate credit ratings agencies.

Legislation details

Among other things, the bill, called the American Health Care Act (AHCA), would overhaul the way the federal government pays for Medicaid starting in 2020. Currently, the federal government pays for between 50 and 74 percent of the costs of covering individuals enrolled in states' traditional Medicaid programs. States are responsible for the remaining share of the costs. There currently are no limits on how high the federal governments' share of the Medicaid costs can grow.

The AHCA would shift Medicaid to a per capita allotment model in which the federal government would provide states with capped payments based on the number of beneficiaries enrolled in states' Medicaid programs. States would be responsible for any remaining costs.

The AHCA also would maintain the ACA's Medicaid expansion—and the ACA's increase in the federal government's share of funding for Medicaid expansion beneficiaries—through Jan. 1, 2020, meaning states that have not yet expanded their programs could do so until 2020.

After 2020, states no longer would be able to enroll additional adults under the expansion, but those already enrolled could remain covered provided they do not become ineligible for the program for longer than one month. States that did not expand their Medicaid programs under the ACA would receive additional federal funding to increase payments to Medicaid providers.

The AHCA also would repeal the ACA's individual mandate, which is intended to encourage individuals to participate in insurance risk pools by assessing a penalty on those who go without coverage. The ACHA instead would seek to nudge individuals to purchase insurance by allowing insurers to raise individuals' insurance premiums by 30 percent for a year if they go 63 days or more without coverage.

Further, the AHCA would replace the ACA's income-based premium subsidies, which help individuals purchase coverage on the ACA's insurance exchanges, with refundable tax credits that would vary based on individuals' ages and incomes.

Projected effects on health care providers

Moody's Investors Service said the AHCA, if approved and implemented in its current form, would be "credit negative" for not-for-profit hospitals. According to Moody's, the legislation would cause the U.S. uninsured rate to rise, which would also cause an increase in uncompensated care and not-for-profit hospitals' bad debt.

Moody's said the AHCA's provisions to transition Medicaid to a per-capita allotment model and phase-out the ACA's Medicaid expansion would be the parts of the legislation most likely to negatively affect not-for-profit hospitals, as would its proposed changes to the ACA's subsidies.

Likewise, S&P Global ratings in a report published Wednesday wrote that the AHCA "would weaken" health care providers' "overall pay[e]r mix ... as the number of people without insurance would most likely rise" under the AHCA, "as would the hospital sector's level of bad debt and charity care expenses."

Separately, Fitch Ratings in a report published Tuesday wrote that the AHCA would "expose states and hospitals to new fiscal" risks. The report stated that the Kaiser Commission on Medicaid and the Uninsured has estimated that shifting Medicaid to a per capita allotment model would reduce federal Medicaid spending by $1 trillion over a decade. In response, states would have to make budgetary changes that could include cutting hospital reimbursements, according to the report.

Further, under the bill's proposed changes to the ACA's Medicaid expansion states would "be faced with a unique policy predicament of denying Medicaid access to individuals who would otherwise qualify beginning in 2020, or taking on significant costs they had anticipated would be bored largely by the federal government," the Fitch report stated.

In addition, the AHCA would increase uncertainty in the health care market, which could negatively influence some providers' access to and expense of capital, according to the Fitch report. The report stated, "Health care providers' capital deployment priorities may change when return expectations for capital investments have a wider range of possible outcomes." It continued, "Similarly, refinancing debt maturities likely becomes more difficult as regulatory uncertainty persists, which is noteworthy given the number of lower rated health care providers with debt maturities between 2018 and 2020."

However, Fitch stated that it has not changed its stable long-term outlook for the health care market. According to the report, Fitch still expects health care providers to see increased patient volumes because of rising demand from older U.S. residents. The agency also said it expects Medicare, Medicaid, and commercial payers to continue focusing on managing overall health care costs, as well as increased focus on shifting the U.S. health care system toward value-based payments. The report stated, "Providers in particular will increasingly need to demonstrate value, grow share within core markets, and coordinate care across settings through some combination of consolidation, vertical integration, and partnering with other systems" (Barholz, Modern Healthcare, 3/9; Ellison, Becker's Hospital CFO, 3/9; Ellison, Becker's Hospital CFO, 3/8; Gooch, Becker's Hospital CFO, 3/8).

What you need to know about the House GOP's repeal and replace plan

Our experts have dug into the GOP's new plan to understand how it will affect you, including its potential big changes to the individual insurance market and Medicaid program. 

Join us for a webconference on March 17 to learn the details and hear how you can prepare for changes to the ACA. Our last webconference on the politics of health reform filled up in record time, so reserve your spot today.

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