Source: HCA via Google Maps
The Affordable Care Act has a lot of missions, but it's unlikely that fattening hospital balance sheets was one of them. Yet, that's exactly what has happened in the year following Obamacare's first open enrollment period.
According to HCA Holdings (HCA 2.94%), one of America's largest hospital operators, both hospital admissions and profits have jumped in the past year. That may be a bit surprising given that many worried that readmission penalties, falling Medicare and Medicaid reimbursement, and exchange plans squeezing hospital margin would cause the industry to stagger.
But instead of staggering, hospitals are standing tall. According to the Department of Health and Human Services, which runs Medicare, Medicaid, and the Affordable Care exchanges, Obamacare will have saved the hospital industry a whopping $5.7 billion in its first year.
That's because more than seven million people signed up for health insurance through state and federal ACA exchanges and another 8 million gained insurance coverage thanks to Medicaid expansion in 25 states.
Shifting costs
Previously, many of those millions of people would turn up in hospital emergency rooms. They went there not because ERs offer fast and friendly service, but because the law requires that ER's provide care regardless of a person's ability to pay.
As a result, the industry has historically had to write off billions of dollars in emergency room care, resulting in a massive headwind to hospital earnings. According to data from the Centers for Medicare and Medicaid Services, or CMS, and American Hospital Association, the price tag for that charity care was between a jaw-dropping $46 billion and $51 billion in 2012.
However, that's quickly changing post-reform; especially, in states that have adopted Medicaid expansion. As part of the Affordable Care Act, states were granted an option of extending Medicaid coverage to people earning up to 138% of the federal poverty levels. Since a significant portion of the cost to expand Medicaid is being picked up by the federal government, 25 states adopted the provision, leading to a surge in Medicaid enrollment.
According to CMS, enrollment in Medicaid reached 67.2 million people in the most recently reported month of July; an increase of roughly 8 million people, including 373,000 that signed up in July. As a result, surging Medicaid enrollment is responsible for $4.2 billion of the $5.7 billion that Obamacare saved the hospital industry in the past year.
Spread unevenly
Since so much of the hospital industry's savings are being captured in Medicaid expansion states, hospitals in those states are seeing the biggest benefit to their bottom line.
According to HHS, measuring uninsured admission volume at hospitals in the year ending Q2, 2014 showed that hospitals run by Community Health Systems (CYH 4.22%), LifePoint (LPNT) and Tenet Healthcare (THC 3.17%) were bigger beneficiaries of the ACA than HCA, which operates a lot of facilities in the non-expansion states of Texas and Florida.
HHS data also showed that hospital admissions for Medicaid patients are growing unevenly, too. States expanding Medicaid are seeing the largest increase as newly covered patients turn to ERs more frequently.
Looking forward
Hospital tailwinds should continue next year, too. Estimates peg the number of people who will be covered by the public exchanges in 2014 could climb to more than 13 million. Medicaid enrollment should also continue growing since additional states, like Pennsylvania, are signing on. If those estimates prove true, hospital earnings will likely head higher next year.{%sfr%
