Public-Option Bill Cuts $774 Billion in Hospital Revenue: Report

March 12—High-profile legislation that would launch a Medicare-based public option to compete against private insurers would slash national healthcare spending—primarily through reduced hospital pay, according to a new analysis.

A KNG Health consulting analysis, sponsored by the American Hospital Association (AHA) and the Federation of American Hospitals (FAH), examined the financial implications of the Medicare-X Choice Act, which is 2017 legislation to create a government insurance option to be sold in all Affordable Care Act (ACA) marketplaces.

A key cost-control feature of the bill is that the so-called public option would pay Medicare rates to providers. Rural hospitals would be paid Medicare plus 25 percent rates.

The KNG analysis projected 40.7 million would enroll in such a public option starting in 2024, and about 90 percent of enrollees would come from those who have coverage in the nongroup market or through employer-sponsored insurance (ESI).

Of note, only 5.5 million of the 29 million people currently uninsured were projected to sign up for the public option.

The Medicare-X plan was projected to cut healthcare spending by $1.2 trillion (or 7 percent) over the 10-year period from 2024 to 2033. The bulk of those savings would come from $774 billion in hospital spending reductions stemming from the use of Medicare rates instead of higher commercial insurance rates.

Such rates fall far below the cost of delivering services, on average. Medicare paid hospitals only 87 cents for every dollar they spent caring for Medicare patients in 2017, according to aJanuary AHA report. Additionally, 66 percent of hospitals received Medicare payments less than cost.

The measure would “create disruptions in the ESI market and essentially decimate the individual market,” said Tom Nickels, a senior vice president for AHA. “As a result, hospitals would unlikely be able to serve our patients as we do today.”

As a result, hospital Medicare margins would deteriorate from their 2017 mark of -9.9 percent, according to a report from the Medicare Payment Advisory Commission (MedPAC).

“For those hospitals that would be able to stay open, this loss of resources would throttle their ability to keep pace with new life-sustaining advances in medicine, to continue to invest in new payment and delivery models, and to manage rapidly escalating drug prices,” Nickels said in a media call.

Even without the implementation of Medicare-X, up to 50 percent of hospitals could have negative overall margins by 2025, according to Congressional Budget Office projections.

An additional downside projected from the Medicare-X bill is increased financial pressure on the rates of the remaining private insurers, which could undermine coverage for those not covered by the public option, according to hospital advocates.

“Unfortunately, this proposal could unintentionally put access to care at risk for communities across America,” Nickels said.

Chip Kahn, president and CEO of FAH, said the report shows the importance of ensuring that beneficiaries truly have access to care.

“If you have coverage with benefits but you don’t have access to hospitals and clinicians, then the coverage isn’t worth the money being paid for it,” Kahn said.

Medicare Expansion Bills

The Medicare-X Choice Act of 2017, sponsored by Sens. Michael Bennet (D-Colo.) and Tim Kaine (D-Va.), was introduced in 2017 and will be reintroduced in the current Congress, according to their staff. The hospital groups chose to analyze Medicare-X because it was seen as the leading public-option proposal, according to association staff.

The bill sponsors blasted the hospital-sponsored study.

“We introduced Medicare-X to give families more low-cost, high-quality healthcare options, not to line the pockets of hospital executives,” the senators said in a joint statement. “Our goal is to ensure that all Americans—especially those living in rural areas with few insurance options—can receive the care they need. It shows completely misplaced priorities for these groups to attack our commonsense proposal to expand health care at a time when President Trump has proposed slashing healthcare programs that are critical to their patients.”

Among specific criticisms, the senators’ staffs contended that the study was a faulty comparison because it compared Medicare-X with full implementation of the ACA, which has not occurred in the 19 states that have not expanded Medicaid eligibility.

“The Medicare-X Choice Act sponsors are supportive of full implementation of the ACA and would like to see Medicaid expanded in every state, in addition to a strong public option,” they said.

Sen. Debbie Stabenow (D-Mich.) recently introduced a “Medicare at 50” bill that would allow those 50 and older to buy into Medicare using premiums that cover the full cost of benefits and administration. Although the Stabenow bill has not received an official cost estimate, a Congressional Budget Office estimate of a Medicare buy-in bill 11 years ago estimated that premiums would cost at least $7,600.

Stabenow’s bill drew the support of 16 Democratic cosponsors, as well as companion legislation introduced in the House of Representatives by Rep. Brian Higgins (D-N.Y.).

A similar bill from Sen. Jeff Merkley (D-Ore.) would allow anyone to use ACA marketplace subsidies to buy into Medicare.

Other bills would lower the eligibility age to enroll in Medicare, such as a bill introduced in the last Congress by Rep. Jan Schakowsky (D-Ill.).

The highest-profile expansion bills are Medicare-for-all bills, such as one recently introduced by Rep. Pramila Jayapal (D-Wash.)

Another Approach

Alternatively, the report projected that 9.1 million uninsured people would gain coverage if certain legislation bolstering the ACA were enacted.

“While Medicare-X Choice would increase insurance coverage, the gains are modest relative to what could likely be achieved through strengthening existing components of the Affordable Care Act,” the report stated. 

Such tweaks to the existing system would maintain the “delicate balance of coverages and payers” that is required to sustain the existing hospital system, Kahn said.

“Unbalance that teeter-totter and the financing of care will not work,” Kahn said.

That imbalance already has occurred in rural areas, according to Kahn, as evidenced by a rash of financial failures. Since January 2010, 101 rural hospitals have closed, according to the North Carolina Rural Research Program.