From the AFL-CIO: Higher Costs and Less Care for Families With Job-Based Health Insurance
On May 22, the House of Representatives passed the One Big Beautiful Bill Act (H.R. 1) on a close party-line vote of 215 -214. This Republican-led legislation is now before the Senate, and the AFL-CIO with its affiliated unions are advocating against the $1.3 trillion reduction in medical services that is included in the Republicans’ budget reconciliation policy. Based on assessments from health insurance experts, unions are concerned that working families with employment-based coverage may see their premiums increase significantly as a result of the uncompensated care costs expected to stem from this legislation.
Health coverage is a key benefit that unions often secure for their members through negotiation with employers. Union-negotiated health benefits are often provided through a multiemployer health plan that is jointly managed by a union and employers, or under a collective bargaining agreement with a single employer. The AFL-CIO requested industry analysts advising these health plans to provide an assessment of the impact of massive federal health spending cuts on people in employment-based coverage. Additional context is provided from other sources.
Key Concerns
- Uncompensated care costs shifted to private insurance could result in increased yearly costs of $182 - $485 per person for the 179 million people in employment-based coverage.
- Hundreds of hospitals nationwide could reduce capacity or close due to lost revenue, making care unavailable in many communities.
- 607,000 health care jobs may be eliminated, intensifying the U.S. health staffing crisis and reducing everyone’s access to qualified care.
Communities Across the U.S. Will Experience a Financial Shock that Reduces Everyone’s Access to Medical Services
The Republican budget reconciliation bill pairs a package of $3.7 trillion in tax cuts skewed toward the wealthy and corporations with massive spending cuts in Medicaid, the Children’s Health Insurance Program (CHIP), the Affordable Care Act (ACA), and other federal programs. The Congressional Budget Office (CBO) found that the Republicans’ reconciliation policy will eliminate $1.3 trillion dollars in health care spending under these programs, through reductions in the bill and failing to include ACA enhanced premium tax credits among the scores of other tax provisions the bill extends. CBO estimated that these combined policies will result in 16 million people becoming uninsured.
Many of the 16 million losing insurance will forgo needed medical care, even for chronic conditions, until they become seriously ill. Researchers at Yale and the University of Pennsylvania found that H.R. 1 will result in 51,000 preventable deaths a year – 38,000 due to lack of insurance coverage and an additional 13,000 due to the repeal of nursing home staffing standards. Others losing insurance will still seek care in desperation, even if they are unable to pay for it. Many will incur medical debt and experience creating financial hardship. Hospitals, who are forbidden by federal law to turn away seriously ill patients without treating or transferring them, will not compensated for the care provided because they are unable to collect from patients who lack insurance.
Economist Josh Bivens of the Economic Policy Institute (EPI) points out that beyond the harm experienced by the millions of people losing publicly-financed health care, people with other forms of health insurance may also face higher costs and problems accessing care:
All of this means that the rise of uninsurance stemming from the House bill will cause a flood of uncompensated care—health care delivered in places like emergency rooms that the patient themselves cannot pay for because they’re uninsured. State and local governments will foot the bill for much of this uncompensated care. Some of it might be passed on to higher prices generally for health care, pushing up premium costs and out-of-pocket costs for even those who remain insured.
A flood of uncompensated care will jeopardize the financial health of health care providers, leading hospitals and other providers to reduce capacity or close as a result of lost revenue, particularly in rural and other underserved areas. The Sheps Center at the University of North Carolina found that 338 rural hospitals across the country would be at risk of cutting services, converting, or closure due to the health spending cuts in H.R. 1.
Provider closure and downsizing will also result in substantial job losses. Researchers at the George Washington University estimated that the spending reductions and omitted extension of ACA enhanced premium credits would cause hospitals, doctors’ offices, pharmacies and health providers to cut jobs or close entirely. In all, 607,000 health care jobs would be lost nationwide, with knock-on economic effects that would eliminate an additional 567,000 jobs in nonhealth sectors.
The loss of care facilities and health professionals will simply make care unavailable for many families, even if they have insurance. The financial strain placed on hospitals and other providers may drive many to raise their prices for all their patients.
Uncompensated Care Costs Jeopardize Everyone’s Access to Hospital Care
The largest component of the $1.3 trillion dollar reduction in health services is a ten-year $793 billion cut to people enrolled in Medicaid. Beyond providing health care for the 83 million enrollees who are lower-income, aging, or people with disabilities, Medicaid is also a major source of revenue for hospitals, providing 19% of all reimbursement ($263 billion in 2022). Hospitals bear the highest proportion of uncompensated care costs (60% in 2013), because of the high cost of the services they provide.
Medicaid is dually funded by the federal government and the states, but states face constraints in making up the shortfall. States could reduce Medicaid eligibility, benefits, and/or provider payments. They could also raise taxes or shift funding from other state priorities such as education, transportation, or public safety. Given these difficult policy decisions, states are unlikely to make up the shortfall.
Unfortunately, this shortfall will have a serious impact on access to hospitals across the U.S., as many hospitals are in poor financial condition. According to KFF, nearly four in ten hospitals (39%) reported negative operating margins in 2023. Operating margins are a measure of financial standing, showing whether or not hospitals are profiting or losing money on the services they provide. Hospitals with negative margins may struggle to absorb losses caused by H.R. 1, especially the 12% of hospitals with margins below -10%. The 22% of hospitals with positive margins of less than 5% could also be challenged in absorbing the losses.
The financial strain on hospitals will have a direct impact on patients in communities across the U.S., as hospitals take steps to reduce their costs or close as a result of lost revenue:
- Reduced access to professional care and lower quality of care. Hospitals may reduce staffing levels or lower staff pay. Reduced staffing levels will lower the quality of care and impact patient outcomes.
- Longer wait times. Hospitals may shorten operating hours or reduce capacity for their services.
- Outdated technology. Investments in updated care technology may be reduced.
- Hospital closures making care unavailable.Hospitals will close or consolidate in many communities, forcing some patients to travel long distances or forgo necessary care. Access to outpatient care would also be reduced.
Increased Costs for Families with Employment-Based Coverage
Hospital efforts to make up for revenue shortfalls may also include seeking greater reimbursement from commercial insurance carriers and self-pay patients. People with private insurance may be charged higher prices by hospitals, adding to the premium cost of their insurance or resulting in reduced benefits. Industry analysts consulted by AFL-CIO estimated that the 179 million people with employment-based coverage could potentially see an annual increase in their coverage costs of $182 - $485, assuming reduced yearly health system spending of $130 billion a year under H.R. 1.
% of lost federal funding shifted to private payers | 25% | 50% | 67% |
Annual expected loss revenue to shift | $32.5 billion | $65 billion | $86.7 billion |
Number of covered lives | 178,742,400 | 178,742,400 | 178,742,400 |
Increase in cost per covered life | $182 | $364 | $485 |
The analysts identified other factors that could increase the annual cost of job-based coverage. Private health plans may face higher costs if they enroll people losing Medicaid or ACA coverage under the Republican budget bill. Medicaid enrollees have higher health care needs which will increase health plan costs.
As hospital revenues fall under H.R. 1, many hospitals may move to consolidate in order to continue operating. Fewer independent hospitals in a region will result in less competition, driving up prices. Hospital consolidation is already a marked problem across the country, contributing to higher insurance costs for working families.
Making Care Affordable by Lowering Prices
Instead of achieving federal “savings” by taking health care away from 16 million working people, the Republican Congress and the Trump administration should focus on reducing the excessive prices that are rampant in our health care system. Hospital consolidation could be a focus of work by the Federal Trade Commission, spurring legal action by the federal government. Congress could pass legislation to strengthen Medicare drug price negotiation by expanding the number of drugs subject to negotiation. Excessive drug prices could be curbed for all Americans by passing legislation (S. 1186, H.R. 2554) to extend the enforcement of drug price inflation caps beyond Medicare to cover everyone. A number of bills with substantial numbers of cosponsors could lower prices for working families now.