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The CBO estimates that over 10 years, the Build Back Better Act would cut hospital charity care funding by $34.5 billion.
Over the same period, the bill would spend $43.8 billion to reduce the number of uninsured people — a key driver of charity care costs.
In the first four years, the balance is much more favorable to hospitals, but precise impacts are difficult to predict.
Florida Republican Sen. Rick Scott regularly attacks the Democrats’ Build Back Better Act as a formula for more inflation and government overspending. But his latest criticism chastises the $1.75 trillion package for the money it would not spend.
The bill would reduce the money that compensates hospitals for charity care. That’s when they treat patients and don’t recoup their costs, generally because the patient either has no insurance or has Medicaid, which doesn’t fully cover the cost of care.
Not every state would have to worry about this provision. The change targets the 12 states that rejected federal help to expand Medicaid eligibility under the Affordable Care Act. Florida is one of them.
Scott’s office said in a Dec. 7 press release that he had sent a letter to Florida hospitals "warning them of the dangerous provision within Democrats’ reckless tax-and-spending bill that includes $34.5 billion in cuts to Disproportionate Share Hospital Payments (DSH) and states’ Uncompensated Care Pool (UCP) programs."
"These programs are used to fund charity care by hospitals for patients who are uninsured and underinsured," the release said.
Scott’s claim is accurate about the size of proposed cuts to charity care programs, but it provides an incomplete picture of the bill’s impact on health funding. He leaves out the estimated $43.8 billion in the Build Back Better Act to give private health insurance to the people who would have been covered under Medicaid expansion — money that would presumably reduce the need for federal spending on charity care.
"Claiming that the Build Back Better Act would slash charity funds without accounting for increased spending that would expand coverage, and so decrease the need for such charity funds, is misleading," said David Gamage, professor of health policy law at the University of Indiana.
Scott’s office didn’t respond to a request for comment.
For decades, Medicaid has sent federal money to the states to help so-called disproportionate share hospitals. These are hospitals that treat especially large numbers of people without insurance or who are on Medicare or Medicaid.
Washington also offered another pot of money that tackled the same problem for states that get permission to create their own uncompensated-care pools.
For the 12 states that did not accept federal money to expand Medicaid eligibility, the Build Back Better Act would reduce the money for both programs. The Congressional Budget Office estimates that by 2031, the total reduction will be about $34.5 billion. That’s the cut Scott cites.
But the proposed cut in hospital aid wouldn’t take place in a vacuum. It is part of a strategy to insure people who have fallen through the cracks of government insurance programs. These are people who make too much or otherwise don’t qualify for Medicaid in their state, yet are too poor to qualify for the premium tax credits through the Affordable Care Act exchanges, which are available only to people above the poverty line.
When the Affordable Care Act passed in 2010, the idea was that between subsidized private-insurance premiums and making Medicaid available to more people, just about every legal resident would have access to some kind of insurance. (Adults living in the country without permission are not covered.) That assumed that every state would take advantage of federal help to expand Medicaid. When the Supreme Court ruled that states could opt out, that created a group of people caught in the middle.
These are people whose incomes are below the poverty line — many work in low-wage jobs — but they don’t qualify for their state’s Medicaid program because they make too much or don't have children. And they don’t qualify for subsidized private insurance, because the way the law was written, people below the federal poverty line aren’t eligible. Today, an estimated 2.2 million people fall in this gap.
The 12 states where this matters are Alabama, Florida, Georgia, Kansas, Mississippi, North Carolina, South Carolina, South Dakota, Tennessee, Texas, Wisconsin and Wyoming.
Closing the gap has been a Democratic focus for some time. The Build Back Better Act aims to do so by steering more money to private insurance subsidies.
In its first four years, the Build Back Better Act would provide $59.3 billion to subsidize private insurance through the exchanges for the people caught in the gap. The aid ends in 2026.
Over the same period, it would reduce hospital aid by $13.9 billion. With more insured people, the reasoning goes, hospitals would need less money to cover uncompensated charity care.
This trade-off is not a new idea. Melinda Buntin, formerly at the Congressional Budget Office and now a health policy professor at Vanderbilt University, said it was written into the Affordable Care Act, even if repeatedly deferred. The law took the linkage for granted.
"The ACA clearly cut Disproportionate Share payments in anticipation of hospitals seeing fewer uninsured patients," Buntin said.
Many studies show that when states expanded Medicaid, their hospitals benefited because they were treating fewer people without insurance.
A review of those studies by the Kaiser Family Foundation found that Medicaid expansion "contributed to increased hospital revenue overall." Medicaid might not fully reimburse a hospital for its costs, but even partial coverage was better than no payment at all.
For the most part, hospitals saw a drop in the level of uncompensated care. However, the foundation’s review noted that some hospitals did better than others. One study found that "only hospitals in non-metropolitan areas and small hospitals experienced improved profit margins."
In short, expanded insurance helps in general, but it is trickier to predict the impact on any particular hospital.
Ideally, the number of uninsured people would drop before hospitals saw their federal compensation decline. The Build Back Better Act tries to account for that.
Based on the CBO estimates, the new insurance premium subsidy would come in Year 1, and the first cut in uncompensated care funding would take place in Year 2. In the first four years, the bill would spend four times as much on helping people get insured as it would cut in hospital payments. (The subsidies would end after that, so over the 10 years, the net new spending would be $48.3 billion.)
The Urban Institute, a Washington research center, ran the spending plan through its computer model and said "in the years during which additional subsidies would be provided, hospitals overall would be substantially better off than they are under current law."
But again, the researchers cautioned that not all hospitals will necessarily do better. The reductions in government aid for them might not track with the increase in the number of insured patients. In particular, because only legal residents of the U.S. would be eligible for subsidies, "hospitals serving a disproportionately high share of undocumented people would see less benefit," they wrote.
Matthew Fiedler, a fellow with the USC-Brookings Schaeffer Initiative for Health Policy, projected that most hospitals would be much better off, at least initially, under the proposals in the Build Back Better Act. If everything was in place by 2023, Fiedler estimated a gross gain of $11.9 billion in hospital margins across the 12 states that rejected Medicaid expansion.
However, Fiedler told us that over a 10-year period, that wouldn’t last. The insurance subsidies would end, but the cuts would continue.
"That suggests that the bill, as written, would be roughly a wash, or a bit better than that, for hospitals," Fiedler said.
Fiedler said you have to be careful when comparing the new money for insurance subsidies to the cuts in charity care. He said a lot of the money to expand insurance would eventually make its way to hospitals, but some would go to doctors and drug makers, and a smaller share would go to the insurance companies.
A major point of contention is how many people would sign up for the newly available insurance, and how quickly. The fewer who do, the smaller the financial relief to hospitals that treat them.
"I don't buy the argument that all these people really value health insurance," said Joe Antos, a health policy analyst at the market-oriented American Enterprise Institute. "They are used to being abused by the health system. Do you really think they will have a view that I will definitely buy this insurance?"
If the growth of the insured population doesn’t keep pace with the funding cuts, Antos said, he worries most about the "true safety-net hospitals."
That said, no expert we talked to said the expansion of insurance wouldn’t provide some benefit to hospitals.
Scott said the Build Back Better Act includes $34.5 billion in cuts to charity care funding for hospitals.
Scott’s claim is accurate about the size of proposed cuts to charity care programs, but it fails to account for the $43.8 billion in the bill to provide insurance to people who don’t have it today, which would reduce the need for charity care.
The impact of the package on individual hospitals will vary, depending on how fast people sign up for new insurance and local conditions. But the experts we heard from agreed that both changes need to be assessed together.
We rate this claim Half True.
Rick Scott, Sen. Rick Scott to Florida Hospitals: Democrats’ "Build Back Broke" Plan Slashes Charity Care Funding, Dec. 7, 2021
U.S. Congress, Build Back Better Act - House version, Sept. 27, 2021
Congressional Budget Office, Estimated Budgetary Effects of Title III, Committee on Energy and Commerce, H.R. 5376, the Build Back Better Act, Nov. 18, 2021
Congressional Budget Office, Estimated Budgetary Effects of Title XIII, Committee on Ways and Means, H.R. 5376, the Build Back Better Act, Nov. 18, 2021
Kaiser Family Foundation, Build Back Better Would Reduce Disproportionate Share Hospital (DSH) Payments and Limit Uncompensated Care (UCC) Pools in Non-Expansion States, Nov. 19, 2021
Kaiser Family Foundation, Taking A Closer Look At Characteristics of People in the Coverage Gap, July 29, 2021
Centers for Medicare and Medicaid Services, Disproportionate Share Hospital, Dec. 1, 2021
American Hospital Association, Brookings paper misses the point on Medicaid DSH cuts included in BBBA, Nov. 8, 2021
Brookings, How would filling the Medicaid "coverage gap" affect hospital finances?, Nov. 4, 2021
Urban Institute, New Spending from Filling the Medicaid Coverage Gap Would Outweigh Cuts in Disproportionate Share Hospital Payments, November 2021
Email exchange, Matthew Fiedler, fellow, USC-Brookings Schaeffer Initiative for Health Policy, Dec. 8, 2021
Interview, Joe Antos, scholar in health care and retirement policy, American Enterprise Institute, Dec. 8, 2021
Email exchange, David Gamage, professor of health law and policy, University of Indiana Maurer School of Law, Dec. 8, 2021
Email exchange, Melinda Buntin, professor and chair, Department of Health Policy, Vanderbilt University, Dec. 8, 2021
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