Hospital Earnings Supported by Fewer Uninsured Patients

The Persistence of Recent Payer Mix Shifts Have Resulting Valuation Implications

According to the latest U.S. Census data, the percentage of the U.S. population without health insurance is at record lows. During the past two years, Congress passed emergency measures to improve access to public and private coverage during the COVID-19 health emergency. These policies improved access to and affordability of health care and significantly decreased the uninsured population. All other factors being equal, an increase in the insured population lifts earnings for providers that have historically served uninsured segments of the population.

Acute care hospitals treat patients regardless of their insurance status, and they have benefited from a certain percentage of these uninsured patients obtaining some form of insurance. Alternatively, providers that focus exclusively on privately insured patients may be negatively affected by some of their commercial patients transferring to a lower-paying insurance product. Nevertheless, recent gains could be reversed in the near future as government programs and economic trends wane.

By the Numbers

Source: U.S. Census Bureau

Key statistical takeaways from a September 15, 2022 article from the U.S. Census include:

• Overall uninsured rates have decreased significantly since 2019, decreasing from 9.3% to 8.2%.
• Uninsured rates in Medicaid expansion states are significantly lower that non-expansion states (6.2% vs 12.3%).
• The large majority of the newly insured were through public government programs rather than private insurance. The rates of private insurance in expansion and non-expansion states increased only slightly.
• The uninsured rate varies widely from state to state, ranging from 2.5% in Massachusetts to 18 % in Texas.

The Big Picture

• The Families First Coronavirus Response Act provided 17 million eligible adults and children with insurance coverage. Continuous enrollment will end as soon as the public health emergency ends, resulting in an estimated 5.3 million to 14 million losing insurance coverage.
• The American Rescue Plan Act of 2021 expanded access to the Affordable Care Act’s insurance marketplace by enhancing tax credits, essentially eliminating the subsidy cliff. This resulted in a 21% increase in ACA marketplace enrollment from 2021. 
• The Inflation Reduction Act added funding to extend these tax credits but will expire in three years.

What They’re Saying

• “Our health insurance exchange growth grew 20% to 25% in a given period. I do think that was primarily attributable to the increase in enrollment that I think is attributable to enhanced subsidies.” William Rutherford, CFO, HCA Healthcare, Inc., Earnings Conference Call, Second Quarter 2022
• “Our managed care book for the quarter was up about 2.6% compared to overall admissions. That was partly driven, if not mostly driven, by the health insurance exchange volume. We continue to see that. We’ve talked about good enrollment going into that.” William Rutherford, CFO, HCA Healthcare, Inc., Earnings Conference Call, Fourth Quarter 2021

Health Care Valuation Takeaways

• The valuator should understand how uninsured rates could change depending on economic and political environments. These dynamics should be reflected in the subject company’s financial projections and valuation risk factors.
• While certain providers have benefited from the positive payer mix shift toward public plans, there are numerous other factors that should also be understood when projecting revenue. These include reimbursement rate increases and federal or state subsidy levels.
• Businesses that focus solely on insured patients (such as Ambulatory Surgery Centers and Outpatient Imaging Centers) may experience minimal effects from a decrease in the uninsured population; however, they are exposed to insurance mix shifts from high reimbursement commercial plans into lower paying public plans.

Dig Deeper

• Uninsured Rate Declined in 28 States 2019-2021

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This is one in a series of related health care valuation posts:

• Surgery Outmigration Driving Elevated Valuation Multiples in the ASC Segment
• Increased Contract Labor Costs May Lead to Valuation Revisions
• Revenue Growth and EBITDA Multiple Expansion Drove Historical Health Care Investment Returns
• Expanding Supply of Urgent Care Centers Create FMV Considerations
• Behavioral Telehealth Growth May Mean Opportunities for Inpatient Operators
• The Future of US Health Care Profits
• Hospital Expense Statistics Illustrate Significant Labor Pressures
• Health Care Services Transaction Volume Declines Below Pre-Pandemic Levels