Health Care Reform Defiance By Republican Governors Worries Hospital Industry

Republican governors like Rick Scott of Florida who say they will defy President Barack Obama and opt out of a planned expansion of Medicaid health coverage for the poor are setting up a fight with the health care providers in their own backyards.

When the Supreme Court upheld Obama's health care reform law last Thursday, it surprised practically everyone by ruling that states may decline to extend Medicaid coverage to 17 million people with incomes below 133 percent of the federal poverty level, which is $14,856 for an individual this year.

A growing number of Republican governors, including Scott, Terry Branstad of Iowa, Bobby Jindal of Louisiana, and Scott Walker of Wisconsin say they won't carry out any parts of the law, which threatens to deny millions of poor people access to the Medicaid coverage it provides.

But Obama and those uninsured people aren't the only ones who stand to lose. Hospitals that currently treat the poor for free in emergency rooms were counting on a broad expansion of health insurance coverage to cut down on the number of unpaid bills on their books. The American Hospital Association and other national industry groups endorsed the health care reform law, calculating that more insured people would make up for $155 billion in lower Medicare payments over a decade.

A smaller Medicaid expansion would be bad news for hospitals, especially in states like Florida and Texas with large numbers of uninsured people, according to Sheryl Skolnick, a health care equities analyst at CRT Capital Group in Stamford, Conn. "That risk is real and meaningful: the hospitals may end up paying for the poorest and sickest of today's uninsured anyway AND see cuts in Medicare and Medicaid on top of that," she wrote in a note to clients Friday.

Pressure from the influential hospital industry could soften resistance in the states to adding more people to the Medicaid rolls, especially since the federal government will pay 100 percent of the costs of these new beneficiaries from 2014 to 2016 and then phase down its share of the expenses over three years, reaching 90 percent starting in 2020. Hospitals, which are required by federal law to treat anyone with a medical emergency regardless of their ability to pay, were left with $39.3 billion in unpaid bills in 2010, according to the American Hospital Association.

Florida won't take part in the Medicaid expansion, Scott said in a statement Sunday, despite the fact that 25 percent of the state's residents younger than 65 are uninsured, the second-highest rate in the U.S. That was 3.9 million people in 2010, based on data compiled by the Henry J. Kaiser Family Foundation. According to the Urban Institute, 1.8 million Floridians would would qualify for Medicaid benefits under health care reform starting in 2014.

"You're going to have a lot of cuts with no corresponding increase in the number of people that hospitals see that have any sort of coverage," said Bruce Rueben, the president of the Florida Hospital Association. Florida's hospitals ate $2.55 billion in unpaid bills left by uninsured people in 2010, according to the association, which supported the health care reform law.

Even though Medicaid pays just 45 percent to 75 percent of the treatment costs incurred by hospitals in Florida, it's better for them than not getting paid at all. In addition, people with any kind of health care coverage are more likely to visit a regular doctor than to seek treatment at emergency rooms, Rueben said, which should keep those patients out of hospitals.

Getting the Medicaid expansion in place has already become the "number one priority" for the Texas Hospital Association, said John Hawkins, the senior vice president for advocacy and public policy at the organization. "It's the kind of thing that hits our members right on the margin when they're trying to digest other payment cuts," he said.

Twenty-seven percent of working-age Texans, or more than 6.1 million people, were uninsured in 2010, according to the Kaiser Family Foundation. That's the highest rate in the nation and the second-highest number to California's 7 million people. Under the Medicaid expansion, 2.5 million Texans would qualify, the Urban Institute estimates.

But Texas Gov. Rick Perry (R) has been a staunch opponent of health care reform and his administration has indicated a willingness to opt out of the Medicaid expansion. For Texas hospitals, which absorbed $4.6 billion in unpaid bills and charity care in 2010, that's a problem, Hawkins said.

As in other states, the result in Arizona will be increased pressure on hospitals' finances, said Peter Wertheim, the vice president for strategic communications at the Arizona Hospital and Healthcare Association. Arizona hospitals provided $4.8 million in uncompensated care in 2011, according to the association, and the Urban Institute says 463,000 state residents would qualify for the Medicaid expansion. In 2010, 1.2 million Arizonans under 65 were uninsured, or 21 percent of its working-age residents, the Kaiser Family Foundation reports.

"If we opt out, we're still going to have this issue of people going to hospitals without coverage and continuing to add to the uncompensated care," Wertheim said.

Arizona Gov. Jan Brewer (R) described the Supreme Court ruling as "disheartening" and renewed her call for the entire law to be repealed. State House Speaker Andy Tobin (R), meanwhile, came out against the Medicaid expansion. Given budgetary issues and the state's conservative politics, Wertheim said, growing Medicaid will be difficult. "We're going to have to sit down and weigh carefully what is reasonable to expect of our political leaders," he said.

Bruce Rueben of the Florida Hospital Association still believes there's a chance that Scott, a former hospital executive, and the Florida legislature might sign off on the Medicaid expansion, however.

"We're going to have a chance for everybody to move out of the rhetoric that may be about the election and move into a serious discussion about what Florida can and should do," he said, adding that after the election in November, "we're all going to know with certainty what the future of this law is and what the states are going to need to do to prepare for it and to do what is right for their citizens."

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