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Nonprofit hospitals face pressure if reconciliation bill fails

The latest version of a much-negotiated spending bill that Senate Democrats hope to pass before the end of next week features a provision that's key to the stability of the nonprofit health care sector, market participants said.

After passing the House in December as a $1.75 trillion Build Back Better legislation that encompassed President Joe Biden's legislative agenda, the Democrats’ centerpiece bill has since been pared down to a pair of health-care related provisions. The bill would allow Medicare to negotiate drug prices for certain drugs and would cap drug price inflation. It would also grant a two-year extension for Affordable Care Act enhanced subsidies for consumers who buy insurance from the ACA’s marketplace.

It's the ACA subsidy extension that has attracted the attention of some municipal market participants.

If the subsidies are not extended, roughly 12 million Americans would be at risk of losing their insurance, a move that would likely drive up uncompensated care at nonprofit hospitals, who are major issuers of tax-exempt municipal bonds.

Without the enhanced subsidy extension, three million Americans would likely lose insurance next year and another nine million would risk losing it, Vikram Rai, head of Citi’s municipal strategy, said Monday during a client call.

Failure to pass the ACA subsidy extension would be a “big credit negative for the not-for-profit healthcare sector,” Rai warned.

The enhanced subsidies were originally included in the 2021 American Rescue Plan Act, which extended them through 2022. The move drove a record-setting 14.5 million Americans to sign up for coverage.

The House-passed Build Back Better bill extended the subsidies for three years, but that version failed to gain the approval of key Senate Democrat Joe Manchin. The current proposal on the table, which Manchin has reportedly agreed to, would extend the subsidies for two years.

The debate over the subsidies come as the hospital sector faces growing challenges, Municipal Market Advisors said Monday in its weekly outlook. High labor costs, inflation, weaker investment performance and the drop-off of federal COVID aid are all pressuring the operating environment, MMA said.

“On the horizon the sector also faces pressures related to the downstream risks of expiration of enhanced Medicaid funding and enhanced ACA subsidies,” MMA said. The expirations “could negatively affect payments to providers and increase the insured population and uncompensated care.”

The Congressional Budget Office has said the enhanced subsidies would cost $248 billion over 10 years, a cost that would come in part because CBO said it would expect 4.8 million more people would enroll if the subsidies are extended.

The hospital lobby and Centers for Medicare and Medicaid Services have warned the clock is ticking as states and the federal government, which run the marketplace websites, need time to announce rates before open enrollment begins in November. The National Association of Insurance Commissioners penned a letter to Congress urging it to extend the subsidies by July as they will lock in 2023 premiums by August.

The Democrats have until the end of September to pass a spending bill using the reconciliation process, but the Senate is expected try to pass it ahead of its August 5 summer recess. The House leaves for its break on Friday, but if the Senate passes the bill, House Speaker Nancy Pelosi may bring lawmakers back for a vote.

If the health care-related reconciliation bill passes, that would use up the Democrats’ fiscal year 2022 one-time shot at the parliamentary reconciliation process, but recent reports have said the party may consider a separate FY23 reconciliation bill after midterms that’s focused on climate and other Democratic priorities.

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