Tattering the Safety Net

by John Goodman,

Here is irony: the people who talk the most about the need for a social safety net (including the president himself!) are cheerleaders for a health reform that is going to shred it.

How is that happening? By means of the Affordable Care Act (ObamaCare).

Through the Medicare and Medicaid programs, the federal government provides billions of dollars in subsides every year to hospitals that see a disproportionate number of patients who are poor and uninsured or who are on Medicaid. In both cases the result is the same: hospital revenues fall well short of the cost of care they dispense.

The shortfall is what people in the health policy world call “uncompensated care” and the payments are referred to as “disproportionate share” money.

Readers can be forgiven if they are naturally suspicious of hospital accounting. Just as hospital charges are for the most part phony numbers, so are most estimates of uncompensated care. Still, the is no denying that hospitals like Grady Health in Atlanta and Parkland Memorial in Dallas would not exist, or would not be able to maintain the current level of service, without a great deal of government money.

That’s where ObamaCare comes in. One of the ways that the health reform is being funded is through cuts in disproportionate share funding for hospitals. The theory was: if more people ― especially low and moderate income people ― are insured, there will be less need for hospital subsidies. That theory overlooked four important features of the reform, however.

First, half the newly insured will be going into the Medicaid program and Medicaid will continue to pay well below the fees paid by garden variety private insurance. Second, once the newly insured are enrolled in Medicaid, they are likely to double their visits to hospital emergency rooms ― especially those of safety net hospitals. Third, about half the states have not expanded their Medicaid programs (as was originally expected) and that means that millions of people won’t even be bringing hospitals Medicaid’s fees. Fourth, the private insurance being offered in the new health insurance exchanges doesn’t look like a standard BlueCross plan. In order to keep premiums down, insurers are offering very narrow networks of doctors and hospitals that will receive rock bottom payments. In fact, these plans are increasingly referred to as “Medicaid Plus.”

Nationwide, the cuts in subsidies will be large. As Sabrina Tavernise reports in The New York Times:

The cuts in subsidies for safety-net hospitals like Memorial — those that deliver a significant amount of care to poor, uninsured or otherwise vulnerable patients — are set to total at least $18 billion through 2020. The government has projected that as much as $22 billion more in Medicare subsidies could be cut by 2019, depending partly on the change in the numbers of uninsured nationally.

This is bad news for safety net hospitals. Grady Health, for example is facing a loss of about $100 billion in annual subsidies.

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