May 2—Expansion of coverage to the uninsured through healthcare reform to-date is expected to cut hospital bad debt by 13 to 18 percent, according to a report by Bank of America Merrill Lynch.

The cut to hospital bad debt—a primary goal of hospitals backing the insurance expansions that are at the core of the Affordable Care Act (ACA)—would vary depending on remaining unknowns, including the rate at which the sickest uninsured patients enrolled, according to the report.

The 2014 bad-debt reductions of 13.6 percent to 18.6 percent achieved with enrollment to-date were expected to rise to increase to as much as 20.4 percent, due to ongoing Medicaid enrollments throughout the year.

The reductions in bad debt stem from the Obama administration’s announcement this week that 8 million people enrolled in coverage through new government-run marketplaces and 5 million were added by the ACA to Medicaid. The bank’s analysis viewed 2014 Medicaid enrollments of 6 million as “realistic,” with less chance that Congressional Budget Office projections of 7 million new beneficiaries will be reached.

The analysts’ conclusions are based on many assumptions because numerous enrollee details remain unknown. For instance, the report uses a baseline scenario that assumes 52 percent of exchange enrollment was previously uninsured and that 90 percent of individuals pay their premiums to activate their coverage. Both assumptions have been questioned by previous research and analysis.

Another key metric for hospitals is what proportion of exchange enrollment consisted of the previously uninsured. The analysis concluded that so far, the ACA coverage has cut the uninsured rate by 18 percent to 19 percent. However, the degree to which those enrollees were among the sickest uninsured will be a bigger driver of the financial impacts on hospitals, according to the report.

The report concluded that marketplace enrollees tended to be sicker.

“While new enrollment may be falling short, we still believe that sick people are buying insurance based on the latest age and metal tier breakdown of the exchange enrollment,” the report stated. “For this reason, we believe that fewer people need to be covered than the market believes for hospitals to benefit.”

Specific Health System Impacts

The report emphasized that wide market-by-market variations in the number and type of enrollments will result in divergent impacts on specific hospitals and health systems.

For instance, although the report concluded that Universal Health Services and LifePoint Hospitals have seen the largest reductions in the uninsured in their markets, more of the newly covered in their markets were from the Medicaid expansion than from the marketplaces.

Meanwhile, Hospital Corporation of America and Tenet Healthcare appear most likely to match their projections for coverage benefits from the ACA.

The health of the newly insured enrollment will be the “primary factor” in determining bad debt reductions, the report stated.


Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter @rdalyhealthcare.

Publication Date: Friday, May 02, 2014