Report on Medicare Public Option’s Impact on Rural Hospitals Reveals Increased Closure Risks > Hospital Association of Pennsylvania

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Report on Medicare Public Option’s Impact on Rural Hospitals Reveals Increased Closure Risks

August 09, 2019

A newly released report analyzes the potential impact of a Medicare “public option” on U.S. rural hospitals and communities. The report specifically points out the impact on access and the quality of care that rural hospitals provide to their communities.

The Partnership for America’s Health Care Future supported and Navigant Consulting, Inc. prepared the report.

According to the report, as many as 55 percent of rural hospitals, or 1,037 hospitals across 46 states could be at risk of closure if a government insurance program—reimbursing at Medicare rates—is offered as a public option on the health insurance exchanges created by the Affordable Care Act (ACA). The at-risk hospitals represent more than 63,000 staffed beds and 420,000 employees. Authors state that these rural hospitals may have to eliminate services or reduce the number of clinical and administrative staff as a result of the revenue impact of the market shift to a Medicare public insurance option.

Rural hospitals, except critical access hospitals, rely heavily on the commercial patients and employers to make up the negative 8.2 percent operating margin of Medicare patients. The analysis looked through three scenarios to project the impact of a Medicare public option, where a shift of patients from higher-reimbursing employer-sponsored commercial plans to the public option occurs at various levels. The results indicate the following risks:

  • 2.3 percent revenue loss to rural hospitals if only the uninsured and individual market participants shift to public option, putting 28 percent of rural hospitals at high risk of closure
  • 8 percent revenue loss to rural hospitals if 25 percent of the employer-sponsored commercial plan participants, along with the individual market participants, switch to public option, putting 51 percent of rural hospitals at high risk of closure and 39 percent of them at moderate risk
  • 14 percent revenue loss to rural hospitals if 50 percent of the employer-sponsored commercial plan participants switch to public option, putting 55 percent of rural hospitals at high risk of closure and 41 percent of them at moderate risk

According to this study, revenue losses resulting from any of these three scenarios would greatly harm Pennsylvania’s rural hospitals.  The resulting losses for rural hospitals in the commonwealth could range from $456 million to nearly $2.4 billion depending on the scenario.  Pennsylvania’s losses would be surpassed only by California among U.S. states, in terms of total dollars. 

The report suggests that Medicare would have to increase the current reimbursement levels between 40 percent and 60 percent to prevent the financial consequence of the loss of commercial insurance, costing the U.S. government between $4 billion and $25 billion annually.

This new report points to consequences that should be considered and discussed in the context of the policy conversation surrounding efforts to expand coverage through a “Medicare for All” framework. Pennsylvania hospitals support efforts to ensure coverage for all individuals. HAP has historically supported the ACA framework—which offers subsidized coverage through health care insurance exchanges reflecting the market in each state, combined with expanded access to Medicaid—as the most viable mechanism to expand coverage and reduce costs. 

Issues that warrant extensive review and attention as lawmakers explore options to expand coverage include:

  • How new options may impact employer-sponsored coverage
  • Reliance on public programs—Medicare and Medicaid—that have historically reimbursed providers less than the cost of delivering services
  • Pressure to manage the costs within public insurance programs by ratcheting down payment rates for providers
  • Promoting delivery system reforms that have improved care, enhanced quality, and reduced costs

HAP looks forward to engaging with the Pennsylvania Congressional Delegation to inform policy conversations about expanding access to coverage and care.

If you have questions, contact Laura Stevens Kent, HAP’s vice president, federal legislative advocacy, or Jeff Bechtel, HAP’s senior vice president, health economics and policy.

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