Will the dismantlement of Obamacare affect healthcare restructuring?

by Epiq


[author: Brad Tuttle, Managing Director of Epiq's Corporate Restructuring Group]

Bankruptcy filings among hospitals and medical centers more than tripled in 2017, according to data compiled by Bloomberg. While there are many factors contributing to this financial volatility, the political battle over The Affordable Care Act, known as Obamacare, could be a continuing force behind the restructuring of debt and bankruptcy filings in the healthcare sector.

Will the dismantlement of Obamacare affect healthcare restructuring?

In an effort to repeal and replace Obamacare, Congress made a major change to the health care and insurance market. In December 2017, President Trump signed the Tax Cuts and Jobs Act into law. Aside from instituting corporate and individual tax cuts, it repeals the Affordable Care Act’s individual mandate penalty, which requires most Americans to buy a minimum level of health insurance or else pay a fine.

Changes to the Affordable Care Act

Advocates of Obamacare’s individual mandate state the Act was put in place to ensure that a mix of young, old, healthy, and sick people would buy health insurance in the same market. By mandating people to buy insurance who traditionally chose not to, the risk pool would grow, and in theory lower health care costs across the board. It was also intended to give more people the means to seek regular and preventative care, rather than overusing emergency medical services—helping to sidestep the “freeloader” problem, in which people don’t think they need health insurance—until they do.

Now, due to the changes instituted by the Tax Cuts and Jobs Act, the government estimates that insurance risk pools will become costlier as younger, healthier Americans once again choose not to get insurance. While the individual mandate’s penalty is still in effect through 2018, the Congressional Budget Office estimates the repeal could leave 13 million fewer insured over the next decade, and raise premiums by an average 10 percent. 

Hospitals face potentially increased financial pressure

A spike in uninsured patients, especially in rural areas, could put further financial pressure on hospitals. Hospitals have long received funding from the government to cover "uncompensated care" for patients that need medical attention without insurance and can’t pay out of pocket. Obamacare was premised on a carefully crafted hypothesis in which the amount of uncompensated care hospitals received from the government to treat patients without insurance could be reduced, since more people had insurance to cover the cost of their care. Additionally, these changes could impact the framework of the healthcare reimbursement system, altering how healthcare providers receive payment for their services, possibly leading to new payment models.

Given this volatile mix of less uncompensated care and potentially more uninsured patients, many health experts expect the next few years to be quite a bumpy ride for this segment of the American economy.

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