Hospitals have benefited from the ACA’s implementation beginning in 2012. Now, U.S. healthcare systems and health insurers are facing high stakes in the King v. Burwell Supreme Court case. If the Supreme Court rules in favor of King, many enrollees will be unable to afford their insurance as subsidies in 34 states will be ended. This year so far, 11.4 million Americans have signed up for ACA coverage, giving hospitals more paying customers and cutting the number of charity or non-paying customers receiving emergency services. If King wins, an estimated $22 billion in potential healthcare spending is at risk and could trigger insurance premiums increases with a ripple effect of all but the sickest insurers dropping their healthcare plans.
BACKGROUND: The King v. Burwell Supreme Court case challenges the IRS regulation that allows federal subsidies (tax credits) to purchase health insurance on health care exchanges in the 34 states that did not create their own health insurance marketplaces. It is estimated that the subsidies used to purchase health insurance in these 34 states cover 7 million people. King claims ACA language limits subsidies to the 14 states that have established their own exchanges. It is likely that the justices will not issue a decision until late June.
The healthcare sector has navigated many challenging environments in recent years and 2015 looks to remain challenging as hospital operating margins continue to face pressure from rising costs and weaker reimbursement due to the growth of high deductible health plans and reductions in reimbursements from the federal government. The three major credit ratings agencies gave the healthcare and hospital sector a negative outlook, citing anticipated downgrades, declining operating cash flows, and on-going uncertainties surrounding the implementation of the Affordable Care Act. And if the Court rules in favor of King and the subsidies disappear, hospitals that rely on patient revenue will incur significant financial impacts.
In recent years many hospitals have exhausted the low-hanging fruit for cost-cutting. Salaries and wages are one of the largest costs of every company, and are often the most difficult to control. How will hospitals remain competitive with wages in 2015? Other industries have been forecast with economic improvement in 2015 with wage increases expected to be larger than they have been since the beginning of the recession. Small businesses are forecasting growth which means more jobs and greater competition. Compensation that lags the market and competitors can create poor employee morale, have a negative impact on customer relations, and further decline sales. If cost cutting measures are expected to impact wages and tough decisions are to be made, hospital human resources need to get out in front of it and develop an action plan. Pay and pay scales need to be reviewed and compared to current market trends to facilitate educated and informed decisions. All options need to be thoroughly explored. A good communication plan with employees is also critical. It’s up for you to set the tone for employees. The best approach is to be positive and truthful about the challenges facing your organization.
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