Holes in the Safety Net: Obamacare and the Future of New York City’s Health & Hospitals Corporation

EXECUTIVE SUMMARY

Five years after its passage, the Patient Protection and Affordable Care Act (“ACA”) has been rightly hailed as a historic accomplishment. The expansion of Medicaid, creation of subsidized health insurance exchanges, and other ACA-related reforms have provided coverage to over 11 million previously uninsured Americans—many of them low and moderate-income workers.

The ACA’s provisions have dramatically improved the health insurance landscape for consumers. Changes in eligibility, requirements fostering broad participation, and improvements to the purchasing process have created a fairer, more transparent, and more accountable marketplace. Indeed, nationally, health insurance premiums on the exchanges have generally increased at a slower pace or even fallen. Rates in the official health benefits exchange—New York State of Health–decreased by at least 50 percent in 2014 compared to what was available in the individual market prior to the ACA.

While the ACA has unquestionably been of great benefit, the law contains one drawback that is of particular relevance to New York City: proposed reductions of up to 43 percent in Disproportionate Share Hospital (DSH) payments—the dedicated federal funding stream that states distribute to hospitals to partially offset the costs of caring for large numbers of uninsured patients.2, 3 The percentage reduction will be larger for “high DSH” states like New York that have historically received generous allocations.

Reductions in DSH payments will hit New York City particularly hard given our high number of uninsured residents. Prior to the first ACA open enrollment period, an estimated 1.2 million New York City residents were uninsured. Just under 500,000 City residents enrolled as of April 15, 2014, of which 80 percent reported having no insurance at the time of enrollment. An estimated 800,000 remained uninsured as of March 2014, the end of the first open enrollment period.

Many of these uninsured residents are undocumented immigrants, who are largely ineligible for public health insurance like Medicaid and prohibited from purchasing private coverage under the ACA.

Data about undocumented immigrants is particularly dependent upon the use of estimation methodologies. New York City does not allow service providers to inquire about immigration status to encourage the use of available services. Beyond that, because of the often drastic consequences associated with “coming out of the shadows,” it can be difficult to reach and count members of this community.

The New York City Health and Hospitals Corporation (“HHC”), the largest municipal healthcare system in the country, is the primary provider of healthcare to the City’s over 500,000 undocumented immigrants. During Calendar Year 2014, HHC reported treating 431,000 uninsured patients. As a result, HHC is uniquely threatened by the proposed decrease in DSH payments.

The City has a long, complex history of financial support for HHC. While the budget battles have been heated at times, the City has ultimately helped HHC to maintain its mission. For that reason, the City has a strong interest in ensuring that other revenue sources on which HHC depends are maximized to the fullest extent possible to place the Corporation on a path toward long-term financial stability.

This report, by New York City Comptroller Scott M. Stringer, explores the potential impact of the DSH reduction on HHC. The report makes the following findings:

• While the ACA is making headway in reducing the number of uninsured New Yorkers, progress is gradual, and the projected savings do not come close to offsetting the proposed DSH cuts. Indeed, there exists a significant divergence between the proposed DSH funding reduction for HHC and the projected decrease in the number of uninsured patients HHC expects to treat. HHC currently reflects a 24 percent reduction in its DSH revenue from the federal cut in 2019. However, HHC reported that the number of uninsured patients dropped by only 1.3 percent from FY 2013 to FY 2014. Going forward, HHC only predicts an additional drop of 7.2 percent in its uninsured patient pool by 2019.
• Revenue from new enrollees in HHC’s MetroPlus private health insurance plan is only expected to offset about 28 percent of the DSH cut.
• As a result, even under what may prove to be optimistic assumptions, HHC expects to finish FY 2019 with a cash position of only $44 million, down from $1 billion projected at the end of FY 2015. If not for the projected loss of $381 million in DSH revenue in 2019, HHC’s cash position would improve from a projected $44 million to $425 million.

While the U.S. Department of Health and Human Services has delayed the implementation of DSH cuts until 2017, the Comptroller makes the following recommendations in order to strengthen HHC’s financial condition and reduce pressure on the City to fill the gap created by the DSH reduction:

1. Delay the DSH cuts.

Congress should postpone implementation of the DSH cuts until a fuller picture of the numbers, characteristics, and geographic distribution of the remaining uninsured emerges and the impact of the proposed cuts—particularly on financially-stressed safety-net hospitals like HHC—can be accurately assessed.

2. Make Undocumented Immigrants Eligible for Coverage under the ACA.

Congress should allow undocumented immigrants to enroll in health insurance offered through the ACA exchange, with access to the tax credits available under the law to make buying and using coverage affordable. This would extend the benefits of this landmark law to a vulnerable population, keep all New Yorkers healthier and help stabilize the financial status of the hospitals treating them.

While New York should strongly advocate for the preceding much-needed policy changes on the federal level, there are several additional steps that should be considered at the State and City level:

3. Create a state-funded insurance program for undocumented immigrants and others who do not purchase health insurance.

The FY 2016 New York State budget authorizes a new health insurance option, known as the Basic Health Plan (BHP). Created as part of the ACA, the plan will replace State monies with federal funds to provide very low cost insurance to lower-income New Yorkers who don’t qualify for Medicaid and/or find it difficult to afford insurance through the exchange, even with subsidies. Certain categories of non-citizen immigrants will be eligible for the BHP, saving the State an estimated $300 million annually. Unless and until the ACA eligibility rules are changed, the State should explore the feasibility of reserving these funds to cover undocumented immigrants through the BHP.

4. Implement a more equitable DSH formula based on the share of uninsured patients treated.

The State Legislature should promptly implement a more equitable formula that targets the DSH funding pool to hospitals based upon their actual delivery of care to high quantities of the uninsured. The final 2015-2016 New York State budget continues for another three years the transition period for fully implementing changes adopted in 2013 to align the intra-state DSH distribution formula with ACA requirements. During the transition period, the percentage changes in funding levels are capped and gradually increase each year. While this cushions the impact for hospitals losing funds, it also perpetuates a system that has historically short-changed HHC. A more equitable distribution would help HHC obtain its fair share of the available DSH dollars.

5. The City should require HHC to collect and disseminate the costs associated with treating the uninsured and additional information about where the uninsured are treated (by hospital and otherwise) to the extent feasible without making inquiries about immigration status.

This information would help inform policy-makers and other stakeholders more fully about the nature and extent of the financial burden HHC experiences in carrying out its mission and provide a stronger foundation for initiatives to mitigate the impacts.

A healthy city is a strong city. As Dr. Ramanathan Raju, HHC’s Chief Executive Officer noted at a recent policy breakfast, “Most of you here in this room today likely do not imagine yourself using our facilities…But I would argue you do have a stake in the good health of the cook preparing the meal in your favorite restaurant and the good health of your nanny, and the good health of your housekeeper…My health depends on that cook’s health, upon that maid’s health, upon your health.”

In addition to the individual health consequences, failing to care for those who are sick increases long-term economic risk to the city and its broader health. Indeed, the Council of Economic Advisers provided a strong case for passage of the ACA based on its economic impacts. Being uninsured is associated with poor health, which in turn, increases the likelihood of lost work time, increased financial risk, disability, and shorter life expectancy. Helping our workforce stay healthier not only reduces taxpayer obligations for healthcare and other costs, it also increases employment and economic growth.

As the City’s provider of last resort, HHC acts as a safety net, promoting the public health of every New Yorker, not only those directly seeking healthcare at HHC.

New York City will continue to honor our historic promise to welcome immigrants from every corner of the globe. In so doing, we must ensure that our municipal health care system is on firm financial footing so that it can continue to serve the next generation of New Yorkers.