Bush's Health Plan Sends Mixed Signals to Hospital Chains

In his State of the Union address delivered Tuesday, January 23, President Bush mentioned health care as a special consideration for the country:

“A future of hope and opportunity requires that all our citizens have affordable and available health care. When it comes to health care, government has an obligation to care for the elderly, the disabled, and poor children. And we will meet those responsibilities. For all other Americans, private health insurance is the best way to meet their needs. But many Americans cannot afford a health insurance policy.”

His answer?  New policy:

“First, I propose a standard tax deduction for health insurance that will be like the standard tax deduction for dependents. Families with health insurance will pay no income on payroll tax — or payroll taxes on $15,000 of their income. Single Americans with health insurance will pay no income or payroll taxes on $7,500 of their income.”  And, for the uninsured: “My second proposal is to help the states that are coming up with innovative ways to cover the uninsured. States that make basic private health insurance available to all their citizens should receive federal funds to help them provide this coverage to the poor and the sick. I have asked the Secretary of Health and Human Services to work with Congress to take existing federal funds and use them to create ‘Affordable Choices’ grants. These grants would give our nation’s governors more money and more flexibility to get private health insurance to those most in need.”

How will these proposed initiatives influence the health care industry?  According to Bear Stearns analyst Jason Gurda, quoted in <i>Investor’s Business Daily</i>, Bush’s first proposal will be “neutral to modestly positive in the near-term for the hospital industry.”  With a new deduction, so the thinking goes, the uninsured would have extra money to buy insurance.  And more insured Americans would be positive for the hospital industry.

According to <i>Investor’s Business Daily</i>, the American Hospital Association estimates that hospitals provided $28.8 billion in uncompensated care in 2005, the latest year for which data are available. That was up 7% from the prior year and totaled 5.6% of overall expenses.

Bush’s plan might raise margins by 100 basis points, but hospitals already have lost 300 basis points in the last three years alone.

Bush’s plan, Part II, may not be as much of a boon for the industry.  The second proposal shifts money over to states to help them buy health coverage for the uninsured — money that’s currently given to hospitals that care for a disproportionate share of the uninsured.

"This is a direct negative for the industry," Bear Stearns’ Gurda told <i>Investor’s Business Daily</i>. "Payments would be reduced immediately and hospitals are left to hope that the number of uninsured patients will decline in the future."

Hospital chains currently get payments through the Medicaid and Medicare Disproportionate Share Payments (DSH) plan.

Experts figure that publicly traded hospital chains can withstand the loss of DSH revenue better than organizations that operate community and nonprofit facilities.

"For-profit hospitals have tried to position themselves in areas with better paying (patients) so they wouldn’t have to rely on as much of these payments," Gurda said.