Health Care

August 2, 2014

SC hospitals, consumers caught in Obamacare tug-of-war

SC hospital executives estimate that up to 70,000 health insurance customers in SC could lose their coverage if the US Supreme Court rules federal subsidies are unconstitutional because the state did not set up its own insurance exchange.

South Carolina hospital executives these days are like football coaches at halftime, making changes based on what the opposition threw at them in the first half while trying to anticipate the different tactics they might face in the second half.

They aren’t the only ones.

Conflicting federal appeals court rulings last month — one said insurance subsidies are unconstitutional in states that don’t run their own exchanges; another said the subsidies are permitted — could have even more impact on South Carolinians who bought health insurance policies through the Affordable Care Act.

The legal challenges likely are heading to the Supreme Court, leaving up in the air whether millions of people nationwide, and tens of thousands in South Carolina, could lose their new health insurance next year.

Uncertainty in health care budgeting isn’t unusual, but with the ever-changing rules under the ACA, “it has escalated,” said Pam Gallagher, chief financial officer of Columbia’s Providence Hospitals. “Everybody’s looking for that magic potion, but the key is you have to be flexible.”

Up to 70,000 lose coverage?

About 118,000 South Carolinians signed up for insurance through the federal marketplace, which operated in the Palmetto State because the state declined to start its own insurance exchange. But only about 85,000 of those South Carolinians paid their first premium, according to the state Department of Insurance.

More than 90 percent of the policies sold in South Carolina were subsidized by tax credits. If the Supreme Court rules those tax credits — given to low-income buyers — are unconstitutional, most of those policyholders are likely to lose their insurance because they won’t be able to afford to pay the full cost for the policies.

The S.C. Hospital Association estimates ending the subsidies could result in from 60,000 to 70,000 South Carolinians losing their insurance coverage.

Removing those people from the insurance market will have an impact on hospitals’ bottom line, but it should be minimal.

“We know that — particularly, in the environment we have now — we could have significant changes,” said Paul Duane, chief financial officer at Palmetto Health. “It’s not about how you budget for it. It’s how you react to it — how nimble you can be.

“You go back. You renegotiate contracts. You manage costs. There have been challenges before, but not of this magnitude.”

In recent years, hospital planners have dealt with major changes in Medicare and Medicaid reimbursements.

Those changes have meant hospitals do more day-to-day planning and less planning a year out, Gallagher said.

“A certain procedure will one day be inpatient and the next day outpatient,” she said. “But it’s still the same patient.”

Medicaid funding still key

Hospital leaders say they can deal with the small changes.

What they really want is one big change.

But there’s no indication South Carolina Gov. Nikki Haley will back down from her pledge to turn down the federal government’s offer of expanded Medicaid funding for the state.

Haley’s Democratic opponent in November’s election, state Sen. Vincent Sheheen, has said he favors expanding Medicaid so long as the federal government pays 100 percent of the cost. But, in heavily GOP South Carolina, Republican Haley is favored to win re-election.

Expanding Medicaid would provide health insurance to more than 300,000 low-income South Carolinians.

When the ACA was being written, the American Hospital Association agreed that hospitals would accept reduced Medicare payments in return for an expansion of Medicaid. The premise was that hospitals, which legally can’t turn away patients, would save money with fewer uninsured patients.

Now, however, S.C. hospitals face the prospect of lower Medicare payments without any increase in Medicaid to cover the costs of low-income patients.

John Miller, chief executive of AnMed Health in Anderson, said turning down the Medicaid expansion created “a perfect storm” for S.C. hospitals.

“We have this one part that we have absolute certainty about, which is the Medicare cuts,” Miller said. “And we have this huge question mark as to when all of this is said and done politically, legally and otherwise: How many people — who were uninsured out of that 55 million (nationally) when the ACA was passed — are actually going to have insurance?”

As for the thousands of South Carolinians who bought coverage on the new insurance marketplace this year, AnMed has yet to see “any statistical change in either charity or bad debt from the activity that happened on the exchanges,” Miller said.

Considering that, the outcome of the Supreme Court ruling on subsidies might be no more than a burp in the hospital budgeting process.

“It is not the driving issue,” Miller said. “The driving issue for us is Medicaid expansion.”

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