The Potential Impact of a Medicare Public Option on U.S. Rural Hospitals and Communities

Aug 7, 2019

A new analysis of U.S. rural hospitals has found that offering a government insurance program reimbursing at Medicare rates as a public option on the health insurance exchanges created by the Affordable Care Act (ACA) could place as many as 55% of rural hospitals, or 1,037 hospitals across 46 states, at high risk of closure. The rural hospitals at high risk represent more than 63,000 staffed beds and 420,000 employees, according to the analysis by Navigant Consulting, Inc.

Even those rural hospitals not at high risk of closure and the communities they serve face an increased threat. The availability of a public option could negatively impact access to and quality of care through rural hospitals’ potential elimination of services and reduction of clinical and administrative staff, as well as damage the economic foundation of the communities these hospitals serve. 

The analysis, supported by the Partnership for America’s Healthcare Future, incorporated three scenarios in which the availability of a Medicare public insurance option would induce a shift of patients from higher-paying commercial plans, driving down rural hospital net revenue and negatively impacting the communities they serve. Key results and implications from the study include:

  1. Revenue loss to rural hospitals is projected to be 2.3% under a Medicare public option if only the uninsured and current individual market participants shift to the public option, placing an estimated 28% of rural hospitals at high risk of closure (Scenario 1). 
  2. If employers shift between 25% and 50% of their covered workers from commercial coverage to a Medicare public option, hospital revenues are projected to drop between 8% and 14% and cause an estimated 51% to 55% to face high risk of closure with an additional 39% to 41% facing moderate risk (Scenarios 2 & 3). 
  3. To keep hospitals whole from the financial consequences of this potential shift, Medicare would have to increase hospital payment levels for a public option between 40% and 60% above present Medicare rates, costing between $4 billion and $25 billion annually (depending on the severity of the employer shift).