Oral arguments at the Supreme Court regarding the fate of the federal Affordable Care Act focused on cost shifting in the health care market. Cost shifting occurs when the commercially insured pay higher rates than the cost of their care to make up for losses from the uninsured and government underpayments. Cost shifting is real in Maine but Maine lawmakers have the power to keep it from becoming worse.
At the Supreme Court, supporters of the Affordable Care Act cited cost shifting as justification for why all Americans should have to buy health insurance (the “individual mandate”). Generally speaking, if an uninsured individual seeks medical care at a hospital, federal law requires the hospital give treatment.
The costs associated with providing care to that uninsured individual are partially covered by shifting those costs to others with insurance. Affordable Care Act supporters argue that the uninsured shouldn’t be allowed to unfairly burden their neighbors.
Uncompensated care by hospitals consists of both charity care (care provided at no cost and for which no payment is expected) and bad debt (amounts owed but uncollectable from patients who have been billed). Last year, Maine hospitals provided hundreds of millions in uncompensated care and this amount is increasing at an annual rate of more than 7 percent.
But uncompensated care is not the only cause of cost shifting in Maine. Medicaid and Medicare, the two government-sponsored health insurance programs, do not fully reimburse hospitals for the cost of providing care. Medicare, the largest payer of health care bills to hospitals, pays only about 86 cents for every dollar of care provided to Maine’s elderly patients. Maine has one of the worst Medicare reimbursement rates (relative to costs) in the country.
Medicaid, called “MaineCare” in Maine, is administered by the state government. Part of that administration involves setting reimbursement rates. For every $1 of care provided to MaineCare recipients, hospitals are reimbursed only 75 cents.
The failure of these two government programs to reimburse actual costs requires massive cost shifting to patients with private health insurance.
Maine hospitals face additional challenges. The state owes hospitals almost $500 million for care provided to MaineCare recipients since 2009. While these outstanding bills don’t result in cost shifting, they put an incredible strain on hospital budgets and they make meeting payroll increasingly difficult.
Even after accounting for the low MaineCare reimbursement rates, the $500 million in unpaid MaineCare bills and state-imposed taxes on hospital that have doubled in the past decade, the Department of Health and Human Services budget remains a challenge.
In December, the governor filed a supplemental budget to balance a gap in the Medicaid budget for fiscal years 2012 and 2013. Hospitals were asked to absorb $15 million in cuts.
In March, the Legislature adopted an emergency DHHS budget that covered half the shortfall and hospitals agreed to pay an assessment to the state of $14 million as part of that effort. The administration and the Legislature worked with the Maine Hospital Association to structure that hit in a way that was less painful than what originally was proposed and for that we are thankful.
The Legislature soon will have to balance the second half of the DHHS shortfall. It is unclear how much is necessary to achieve that objective. Whatever the gap, hospitals should not be asked to contribute even more.
Hospitals are working with the state on strategies to lower costs and improve quality. In June, the Legislature directed hospitals to work with DHHS to reduce emergency department costs by focusing on those MaineCare members who use the the emergency department most frequently. Working together, hospitals not only achieved the savings booked by the Legislature, they exceeded them.
The Legislature also is counting on DHHS finding $23 million in further savings from implementing “care management” strategies. Hospitals are committed to helping the state meet this target.
Hospitals understood that they would have to absorb direct financial cuts in balancing the DHHS budget this session. And they did.
We recognize the extraordinary challenges faced by the Appropriations Committee and appreciate its willingness to work with hospitals. Nevertheless, reimbursement rates remain below the actual cost of care, hospital taxes remain high and the nearly $500 million in unpaid bills continues to increase each week. On top of that, hospitals have already been forced to pay a $14 million special assessment to the state to help balance the DHHS budget this year.
Hospitals cannot absorb more.
Steven Michaud is president of the Maine Hospital Association.