The impact of single payer on the new york hospitals

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REPORT | November 2018

THE IMPACT OF SINGLE-PAYER ON NEW YORK HOSPITALS

Bill Hammond

Director of Health Policy

Empire Center

Chris Pope

Senior Fellow

Manhattan Institute

The Impact of Single-Payer on New York Hospitals

About the Authors

Bill Hammond is the director of health policy at the Empire Center. He tracks how decisions made in Albany and Washington affect patients, providers, taxpayers, and the economy in New York State. Before joining the center in 2016, Hammond spent almost three decades in newspaper journalism, most recently as a columnist and editorial board member at the New York Daily News from 2005 to 2015. He has also reported for the New York Sun, the Daily Gazette of Schenectady, and the Post-Star of Glens Falls. His writing has been published in the Wall Street Journal, the New York Post, Politico New York, City & State, the Albany Times Union, the Buffalo News, and The 74. Hammond holds a B.A. in English from Harvard University.

Chris Pope is a senior fellow at the Manhattan Institute. Previously, he was director of policy research at West Health, a nonprofit medical research organization; health-policy fellow at the U.S. House Committee on Energy and Commerce; and research manager at the American Enterprise Institute. Pope's research interests include the Affordable Care Act, Medicare, Medicaid, and health-care delivery system reform. His work has appeared in, among others, the Wall Street Journal, Health Affairs, US News & World Report, and Politico. Pope holds a B.Sc. in government and economics from the London School of Economics and an M.A. and Ph.D. in political science from Washington University in St. Louis.

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Contents

Executive Summary...................................................................4 Introduction...............................................................................5 The New York Health Act...........................................................5 Single-Payer: Overall Budget Impact..........................................6 Single-Payer: Financial Impact on New York Hospitals................6 Appendix: Revenue Impact on New York Hospitals of Shifting to Medicare Reimbursement Rates..........................12 Endnotes................................................................................. 19

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The Impact of Single-Payer on New York Hospitals

Executive Summary

The New York Health Act (NYHA) is a bill that would have the state purchase comprehensive medical services for all residents, the costs to be borne by taxation. It currently has broad support in the state legislature. The legislation would establish a single-payer health-care system. While there are various estimates of the plan's overall cost, much less attention is being given to the likely impact on hospital revenues resulting from the plan's displacement of private insurance by a government fee schedule, most likely based on Medicare reimbursement rates. Many hospitals that currently receive relatively high reimbursement rates from privately insured patients could see a significant drop in their revenues.

Key Findings

The adoption of current Medicare reimbursement rates across the board would reduce New York hospital revenues by 17% statewide, cutting income for 77% of the state's hospitals. Total revenues would be cut by more than a quarter at 19% of the state's hospitals.

Even if Medicare reimbursement rates were increased to maintain aggregate statewide hospital spending, revenues would still be altered, up or down, by more than 15% at about half of the state's hospitals.

For many hospitals, the revenue cuts under either scenario would be deep enough to compromise their quality of care, trigger layoffs, and put them at risk of closure. Hospitals serving affluent downstate communities would face the biggest cuts in access to care.

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THE IMPACT OF SINGLE-PAYER ON NEW YORK HOSPITALS

Introduction

The New York Health Act (NYHA) is a bill that would have the state purchase comprehensive medical services for all residents, the costs to be borne by taxation. It currently has broad support in the state legislature.

Proponents of the legislation, essentially a single-payer health-care plan, hope that higher-income New Yorkers would fund expansions of benefits for those lower down the income scale. There are various projections of the legislation's overall cost, but far less attention is being given to the likely impact on hospital revenues resulting from the legislation's displacement of private insurance by a government fee schedule. Many hospitals that currently receive relatively high reimbursement rates from privately insured patients could see a significant drop in their revenues.

The analysis of hospital revenues presented here is based on a reasonable assumption that, under NYHA, all health-care services would be paid by the state using a Medicare-like reimbursement system. This paper therefore compares payments to each New York hospital made by Medicare and other payers, including private insurance, to determine the likely financial impact of a switch from a multi-payer system that includes a portion of market-based fees to a single-payer system in which all fees are publicly regulated.

In sum: the adoption of current Medicare reimbursement rates across the board would reduce New York hospital revenues by 17% statewide, cutting income at 77% of the state's facilities. Total revenues would be cut by more than a quarter at 19% of the state's hospitals. Even if Medicare reimbursement rates were increased to maintain statewide aggregate hospital spending, revenues would still be altered, up or down, by more than 15% at about half of the state's facilities. A shift to Medicare fees under either scenario would tend to redistribute funds from larger to smaller hospitals, from urban to rural areas, and from lower-poverty to higher-poverty counties.

For many hospitals, the cuts would be deep enough to compromise the quality of care, trigger layoffs, and put the facilities at risk of closure. Hospitals serving affluent downstate communities would likely face the biggest cuts in access to care.

The New York Health Act

Almost a decade after the enactment of the Affordable Care Act (ACA), the nation's health-care system remains fragmented and heavily bureaucratic, and costs continue to rise. In New York, the benchmark monthly premium (for a Silver Plan) in the state's ACA health-insurance exchange increased from $343 in 2014 to $506 in 2018, and the state's per-capita health-care expenditures ($9,778) remain well above the national average ($8,045).1 Although the state's uninsured

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The Impact of Single-Payer on New York Hospitals

rate has dropped by about half, about 1 million New Single-Payer: Overall

Yorkers are still without coverage.2

Budget Impact

In response, Assemblyman Richard Gottfried and State Senator Gustavo Rivera have proposed the New York Health Act.3 The legislation has repeatedly passed the State Assembly but, despite widespread support in the Senate, has not come up for a vote in the upper chamber. In this year's Democratic gubernatorial primary, candidate Cynthia Nixon blamed Governor Andrew Cuomo for the bill's failure.4 Cuomo expressed support for enactment of a single-payer system at the federal level but questioned the affordability of a New York?only plan.5 Republican gubernatorial candidate Marc Molinaro pledged to veto the proposal.6

Under NYHA, the state would pay for the health care of all residents currently enrolled in Medicaid, Medicare, employer-sponsored insurance, Child Health Plus, the state's Essential Plan, and the individual market. It would also expand coverage to the 6% of the state's residents who are uninsured, regardless of immigration status.7 Coverage would include the essential health benefits required by ACA. It would also pay for dental and vision-care services that many existing insurance plans do not cover. It would use public funds to pay for all costs that are currently borne by insurers or out-ofpocket by individuals--in other words, no deductibles or copays--with the exception of long-term care, overthe-counter drugs, and elective cosmetic surgeries.8 Providers would be prohibited from charging anything in addition to administratively established rates that the state determines are "reasonable and reasonably related to the cost of efficiently providing the health care service and assuring an adequate and accessible supply of the health care service."9 Selling private insurance would become effectively impossible.

Medical services would be funded through a combination of payroll and non-payroll taxes, but the bill leaves specific brackets, rates, and exemptions to be determined later. NYHA would require federal waivers under the Social Security Act to restructure federal funding currently distributed to New Yorkers under Medicare, Medicaid, and the ACA exchange. The current CMS administrator, Seema Verma, has stated that she would deny any such waivers requested by states seeking to establish single-payer health-care arrangements.10 The state's single-payer plan could also be preempted from interfering with the health benefits of self-insured employers under the federal Employee Retirement Income Security Act (ERISA), or from restricting competition among privately administered plans under Medicare Advantage and Medicare Part D.

Most of the research about a New York single-payer plan has attempted to estimate the aggregate cost of the legislation for taxpayers. For example, Gerald Friedman, an economics professor at UMass Amherst, has claimed that NYHA would cut the state's overall health-care spending by $45 billion, or 15%, as of 2019 because of reductions in administrative costs and payments to medical providers. Nevertheless, he estimated that expanding coverage and replacing private health-care spending would require an additional $91 billion in taxes, on top of the currently projected state revenues of $82 billion.11 This analysis has been disputed by Avik Roy of the Foundation for Research on Equal Opportunity. Roy estimated that a $226 billion increase in state taxes would instead be required to implement changes proposed in the legislation for 2019.12

The RAND Corporation, however, estimated that $139 billion in extra taxes would be needed to fund NYHA in 2022, with the cost to taxpayers rising to $210 billion in 2031.13 The authors of the RAND report suggested that this expense could be funded by a progressive tax, with a top marginal rate (for those with incomes above $141,200 per year) starting at 18.3% in 2022 and rising to 20.0% by 2031. They further warned that the rate would have to rise to 88% if 0.5% of high earners move out of state. The payments would be on top of existing taxes from federal, state, and local governments, which already rise to a top marginal rate of 49.7% in New York City.14

RAND predicts that overall health-care spending under NYHA would be similar to the level under current law in 2022 but that it would reduce health-care spending by 3% by 2031. This reduction is largely the result of the assumption that hospital costs would increase less over time by shifting to the expected rate of growth of Medicare fees.15

Single-Payer: Financial Impact on New York Hospitals

Although NYHA is vague in describing the specific payment arrangements that its advocates claim would generate major savings to state health-care spending, it would nonetheless be fair to assume that payments to hospitals would be based on Medicare rates. This is not

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