The incoming administration’s proposed policy changes are set to create significant financial uncertainty for health care providers. Efforts to identify new revenue sources for the Federal budget, coupled with a lack of bipartisan support for existing health care policies, are expected to result in potential revenue reductions for hospitals. Providers must brace for these shifts and consider strategic adjustments to mitigate the impact on their operations and financial stability.
The Ways and Means Committee’s document details the decade-long budgetary effects of various health care policies. The reconciliation report projects substantial savings, including $100 billion from implementing Medicaid work requirements, $146 billion from Medicare site neutrality and up to $696 billion from reducing subsidies and eligibility for Affordable Care Act enrollees over the next 10 years. While the implementation of these policies remains uncertain, it is evident that forthcoming health care policy changes will affect hospitals.
Enhanced subsidies for Affordable Care Act enrollees
Enhanced subsidies for the Affordable Care Act (ACA) Marketplace plans, initially introduced in 2021 through the American Rescue Plan Act (ARPA) and extended until the end of 2025 via the Inflation Reduction Act (IRA) in August of 2022, have led to a significant surge in enrollments. The number of individuals enrolled in ACA plans has nearly doubled, reaching 45 million people. However, the Congressional Budget Office (CBO) projects that the number of uninsured people will increase by an average of 3.8 million annually from 2026 to 2034, if these subsidies are not extended. The rise in the uninsured population is expected to lead to an increase in medical debt and the need for charity care. A study by KFF, reveals that nearly half (49%) of uninsured adults struggle to afford health care costs, more than double the rate of those with private insurance (21%). Additionally, 62% of uninsured adults report having health care debt, compared to 44% of insured adults.
The likelihood of extending these subsidies appear slim, given the CBO’s estimate of a $335 billion net impact on the federal budget over 10 years. The potential revenue from ending the subsidies could be redirected to offset expenses for other policy proposals, such as extending the Tax Cuts and Jobs Act, which is set to expire at the end of 2025. Furthermore, ACA subsidies may lack strong support from key Congressional members.
The ACA reimbursement rate, while lower than that of commercial plans, is higher than Medicare and Medicaid. A significant decrease in ACA enrollments would result in substantial revenue losses for providers due to reduced reimbursement payments and an increase in uncompensated care.
Reinstatement of Medicaid work requirements
The reinstatement of the Medicaid work requirements could significantly reduce eligibility, increase the number of uninsured individuals, and exacerbate medical debt and health care affordability issues. Initially implemented during the first Trump administration, these requirements faced legal challenges and were subsequently withdrawn under the Biden administration. However, with the new Trump administration, there is renewed support for these requirements. The CBO estimates that reinstating work requirements would reduce federal spending by $109 billion over the 2023-2033 period.
Data on the impact of Medicaid work requirements is limited. Arkansas implemented these requirements from June 2018 to Mach 2020. During the initial months, from August to December 2018, over 18,000 people were disenrolled, with only 11% regaining coverage in 2019. The CBO projects that national Medicaid work requirements would reduce enrollment by approximately 2.2 million adults. Studies indicate that those who lost coverage experienced higher medical debt, with 49.8% reporting serious difficulties in paying off medical debt. Additionally, these individuals delayed necessary medical care and medications due to cost. For providers, this requirement could increase uncompensated care costs and result in lost opportunity costs for those avoiding necessary care.
Expansion of site-neutral payments
Expanding site-neutral payments could significantly impact the health care sector, potentially leading to reduced reimbursements for providers or even closure of hospital facilities already operating at a loss. This could limit access to care in distressed areas. Bloomberg estimates that this policy change could result in a $10 billion annual revenue reduction for the health care sector.
Site-neutral payments aim to equalize reimbursement rates for specific services, regardless of the location where they are provided. This strategy seeks to lower health care costs and remove financial incentives for providers to perform services in more expensive settings, such as hospital outpatient departments, when the same service could be delivered in less costly environments like physician offices or ambulatory surgical centers. According to the CBO (FY 2021 budget), expanding site-neutral payments to hospital-owned physician offices located off-campus could save $39.1 billion over 10 years. Extending these policies to certain procedures at on-campus departments could result in savings of approximately $102.3 billion
Providers face significant risks with these funding cuts. Hospital outpatient department reimbursements are currently 3.2 times greater than those for physician offices. Reducing these reimbursements presents a challenge to hospitals already facing financial pressures, affecting their operating margins and ability to provide critical services. This policy change could exacerbate financial strains on hospitals, particularly those serving vulnerable populations, and potentially lead to reduced access to essential health care services in underserved areas.
Looking ahead
To navigate the financial uncertainties posed by upcoming policy changes, health care providers should strategically leverage technology and implement cost-reducing measures. A comprehensive understanding of case mix and patient experience is essential, coupled with a strong emphasis on preventative care. Providers should also explore alternative revenue sources and diversify income streams to mitigate potential revenue declines while maintaining a focus on growth.
Implementing comprehensive strategies to identify and support patients in need of financial assistance is crucial. This involves not only adhering to existing policies but also expanding outreach efforts to ensure all eligible patients can access available resources. Providers should explore innovative solutions to manage the financial impact of increased uncompensated care. This could include forming partnerships with community organizations, utilizing and leveraging technology to streamline financial assistance processes and advocating for policy changes that support sustainable health care funding.
By adopting these strategies, providers can adapt to policy shifts and better position themselves to weather financial challenges and continue delivering high-quality care to their communities.
Rebekuh Eley
Rebekuh Eley is a health care senior analyst with RSM US LLP.
