Repeal of the Individual Mandate Means More Uncompensated Care

Hospitals will need to document uncompensated care dollars at the patient level.

“The elimination of the individual mandate will have a number of implications for hospital finance,” says Steven Shill, assurance partner and national leader of The BDO Center for Healthcare Excellence & Innovation. In this interview, Shill, along with John Barry, assurance partner in The BDO Center for Healthcare Excellence & Innovation, explain the potential financial implications of the individual mandate repeal.

How will the repeal of the individual mandate affect hospitals?

Shill: It’s a two-fold issue. On one hand, the uninsured population is going to grow again, and hospitals are likely to bear the brunt of this. Second, if more young, healthy people opt out of insurance, the rates will rise, causing more people to choose high-deductible plans. In fact, the percentage of workers facing deductibles already increased to about 85 percent in 2018 compared to 59 percent 10 years ago. Consequently, there will be an increase in deductibles that won’t be paid because patients don’t have the extra cash to cover high deductibles.  

Barry: Another effect of the mandate repeal relates to the disproportionate share dollars available to hospitals. The Affordable Care Act (ACA) lowered the disproportionate share dollars, because as the ACA rolled out, one of the thoughts was, if we have more people insured, we can lower this overall pool of dollars, and we can use that money to help pay for the ACA. And hospitals won’t need as much because more people are going to be insured. So when we see an increasing uncompensated care pool, combined with that lower available disproportionate share dollars, that is just another pressure point that hospitals are going to feel.

Does this increase the need to document uncompensated care?

Barry: Yes. Before the ACA, hospitals used what’s called a disproportionate share calculation. This calculation used a Medicaid utilization rate as a proxy for a particular hospital’s uncompensated care population or uninsured population. They switched the calculation to be based on true uncompensated care dollars, a ratio of the cost to charges of those true uncompensated care dollars. There’s still a little bit of that money based on the old methodology, but the idea is that by 2020, they will move to a full, 100-percent uncompensated care calculation. 

That means that the hospitals now report on their cost report actual uncompensated care dollars on worksheet S-10. And the Centers for Medicare & Medicaid Services (CMS) began auditing that worksheet S-10 in future cost report audits, beginning in 2018. So now hospitals really need to be able to support those uncompensated care dollars at the actual patient level. That means they have to have a strong charity care and uninsured or underinsured policy in place, and they have to have the documentation at a patient level to support those numbers. 

Shill: Hospital electronic health record (EHR) documentation will be critical, including what level of detail the systems actually show and how interoperable the EHR systems are with the financial systems. It is also important that admissions employees are well trained on documenting the inability to pay. 

How should the inability to pay copayments and high deductibles be addressed in the charity care policy?

Barry: If copayments and deductibles are not actually spelled out in the policy, the regulations say that they cannot qualify as charity care. So that needs to be explicit in the policy.

But that’s just one aspect of the charity care policy. Another important point is that anything that hospitals provide as community services should be included. This obviously includes health services, but also could include unpaid public health and wellness educational programs and outreach programs. So it’s not just patients coming through the emergency department without insurance. There’s a lot more to it than that. 

And then there’s one other aspect to the policy that should be considered. And that is patients who come in without the right documentation or any documentation at all. In those cases, you need to look at a presumptive eligibility for financial assistance. For example, if they’re already participating in a state-funded prescription program or if they’re already receiving care from a homeless shelter, those are the types of things that show a presumptive need for financial assistance. 

Interviewed for this article:

John Barry is assurance partner in The BDO Center for Healthcare Excellence & Innovation.

Steven Shill is assurance partner and national leader of The BDO Center for Healthcare Excellence & Innovation.