House Republicans have proposed a short-term government funding bill that includes extending the Children's Health Insurance Program for an additional six years. GOP leaders made the proposal Tuesday night ahead of a looming end-of-the week deadline that threatened a government shutdown.
It's unclear if Democrats, who have been pushing for an extension of CHIP, will vote in favor of the stop gap measure that further guts funding for the Affordable Care Act. The bill would also delay for two years the medical device tax and the so-called Cadillac tax on high-cost healthcare plans, starting in 2018. The health insurance tax would be suspended for one year starting in 2019.
[Also: As January CHIP deadline looms, 1.7M kids at risk]
If it passes, the funding bill is a reasonably strong band-aid on CHIP. But if delays to permanent federal funding for CHIP persist, or the program expires outright, children's hospitals would be forced to absorb the cost of more uncompensated care for more uninsured children, a credit negative, according a new report from Moody's.
"Hospitals with high Medicaid exposure in states running out of funds in the near-term are most at risk. States that replace federal funding will buffer the effect on hospitals," the report said.
[Also: Extending CHIP for 10 years rather than 5 saves $6 billion, CBO says]
Cuts to CHIP coverage will mean more uninsured children. The majority of states operate CHIP under their Medicaid program and hospitals receive a combined payment from the state instead of a separate CHIP payment. Children's hospitals are much more dependent on Medicaid funding, which generally accounts for 52 percent of their gross revenue, including CHIP, compared to adult hospitals for which Medicaid accounts for 15 percent of revenue, Moody's said.
Hospitals in states that are forecasted to exhaust their CHIP funding this month will face the first disruptions in their CHIP programs. Most children's hospitals that Moody's rated as higher than average Medicaid dependency operate in states that will exhaust their funds in this month. Those include: Valley Children's Hospital in California with Medicaid accounting for 74.4 percent of gross revenue; Children's Hospital Los Angeles with Medicaid accounting for 68.6 percent of gross revenue; Arkansas Children's Hospital with 63.4 gross revenue from Medicaid; and Children's Health System of Texas with 61.6 of gross revenue from Medicaid to name a few.
Children's hospitals tend to have strong liquidity and cash flow, Moody's said, which is driven by high patient demand for complicated services, typically favorable commercial insurance terms and good fundraising. Their median days cash on hand is about 379, compared with 205 for adult hospitals, and their median operating cash flow margins are 13 percent compared to 9 percent for adults. So while a short-term interruption would not have lasting negative credit implications thanks to the fact that most children's hospitals have strong liquidity and cash flow, a long-term delay would seriously impact children's hospitals finances.
Some states are receiving payments under the December 21 short-term federal funding extension and/or redistribution of CHIP funds. That continuing resolution aimed to provide CHIP funding through March, but a number of states have reported they will use up their funds before that.
Since CHIP went into effect 20 years ago, the percentage of uninsured children fell to 4.5 in 2015 from 13.9 in 1997, Moody's said citing the Medicaid and CHIP Payment and Access Commission. This has meant low "self-pay" figures, while adult hospitals only started seeing similarly low self-pay when Medicaid expansion reduced uninsured patients.
Twitter: @BethJSanborn
Email the writer: beth.sanborn@himssmedia.com