Moody's says employer mandate delay will harm not-for-profit hospitals

The recent delay of the employer mandate for medium-sized businesses will harm not-for-profit hospitals because it postpones increased revenues from expanded coverage of previously uninsured patients and the subsequent reduction in bad debt and charity care it would bring, a Moody’s report said.

For hospitals, the employer mandate offsets the costs of the Affordable Care Act, including cuts to Medicare disproportionate share (DSH) funds and rate cuts wired into annual Medicare updates.

Earlier this month, the Obama Administration gave mid-size businesses with 50 to 99 employees an additional year to 2016 to provide health insurance to their full-time workers. It was the second delay associated with the employer mandate. Last year, large employers were also given another year to 2015 in which to comply.

Moody’s described the latest mandate postponement as “credit negative” and causing “a timing mismatch between the benefit of fewer uninsured patients and the negative impact hospitals face related to reduced payment updates and cuts to Medicare and Medicaid DSH.”

Hospitals face more than $300 billion in reductions to Medicare payments through 2019 as a result of healthcare reform, the report noted from actuarial studies of the Centers for Medicare & Medicaid Services.

The hospitals most affected by the delay in the employer mandate will be those with a high percentage of their revenues from Medicaid, which will be subject to the highest DSH cuts without the benefit of fewer uninsured patients and lowered bad debt.

Payments for Medicare DSH funds are being cut 75 percent this fiscal year, but they will grow somewhat in the future to take into account the number of uninsured and the amount of uncompensated care a hospital provides. Medicaid DSH cuts will average 4.4 percent but will vary by hospital and state, the report said.