Federal cut may squeeze hospitals

With costs growing for uninsured care, Bush's tax break for insurance gains little favor

Each year, North Carolina hospitals and physician practices absorb well over $1 billion in medical costs for people who don't have health insurance and cannot pay for care. Nationally, the annual tab for the uninsured is estimated at more than $43 billion and rising.

So when President Bush addressed the deepening problem in his State of the Union speech last week, local health-care leaders, politicians and patients were eager for a solution. Few, however, found much to celebrate in Bush's proposal. They say his plan to grant a tax break for people who buy health coverage would miss many uninsured patients. Most are so poor they pay little or no tax.

"It's no help if you don't pay taxes," said U.S. Sen. Richard Burr, a Winston-Salem Republican who often supports the president's policy recommendations. "The administration is aimed at figuring out how to bring more people under the umbrella of insurance, and that is the right direction. But this proposal is flawed."

The president's proposal comes as the federal government seeks to cut how much it pays hospitals to defray the cost of caring for uninsured patients. That pool of federal money now pumps more than $330 million into North Carolina hospitals.

"The strategy cannot be to yank away the safety net and just hope that people use tax savings to go out and buy insurance," said Ken Morris, chief financial officer of the Duke University Health System.

Duke stands to lose about $26 million it now receives through the federal subsidy program. "What happens when people don't buy the insurance?" Morris said. "Hospitals are left holding the bag."

Bill Atkinson, chief executive of WakeMed Health and Hospitals in Raleigh, which expects to lose at least $19 million under the proposed federal changes, said even people with private health insurance will be directly affected by the hospitals' loss of funding. That's because one way hospitals subsidize charity care is by seeking higher prices from patients who can pay.

A study by Families USA, a Washington consumer advocacy group, estimates that ordinary North Carolinians paid an additional $438 a year for individual health insurance in 2005 and an additional $1,030 for family coverage because of this cost shift.

"It just gets tacked on to other hospital bills," Atkinson said. "This just shifts the cost over to the private sector."

One federal proposal

Under a federal rule change proposed earlier this month, the number of North Carolina hospitals that qualify to receive federal money for charity care could fall from 43 to as few as one or two, according to the N.C. Hospital Association. Don Dalton, a spokesman for the group, said hospitals in as many as 40 states will lose out. The federal government estimates the rule change, set to take effect this fall, could save nearly $4 billion.

"In essence, it ends the program," Atkinson said.

The federal government has for years sought to do away with or at least rein in the subsidy program, which allows hospitals and states to claim additional federal Medicaid funding through complicated accounting processes. North Carolina's handling of the subsidy program drew the federal government's ire after it was discovered that the state claimed too much federal money.

Last year, the state and hospitals that received overpayments agreed to repay the federal government about $151 million.

How would loss affect the Triangle?

Losing the federal subsidy for good would make it harder for WakeMed, one of the Triangle's three largest providers of charity care, to cover those costs while continuing to invest in new services and maintain existing programs, Atkinson said. Charity-care expenses surpassed $50 million at WakeMed during the most recent budget year.