Lack of insurance mandate would hurt hospitals -Moodys

April 24 Tue Apr 24, 2012 6:14pm BST

April 24 (Reuters) - Non-profit hospitals will struggle with higher costs if the U.S. Supreme Court overturns a key part of the healthcare reform law that requires individuals to buy insurance, Moody's Investors Service said on Tuesday.

The "individual mandate," which stipulates that individuals who do not buy insurance will face a fine, has become the focus for legal attacks on the healthcare law.

It "would result in a significant reduction in uncompensated care delivered by hospitals" and reduce "utilization of expensive emergency room services," the rating agency said in a special report.

The U.S. Supreme Court heard arguments last month over the individual mandate, and it will soon decide whether to uphold the entire healthcare law, allow the law to stand stripped of the mandate, or strike down the whole law.

"If the Supreme Court overturns the individual mandate, the private health insurance market would likely weaken under the unbalanced weight of strict provisions to cover all those who seek insurance without the counterbalancing benefit of a new, largely healthy, population segment that would be provided under the mandate," Moody's said.

"This scenario could become untenable for many insurers and hospitals, as costs would rise but revenues would not," it added.

There are also challenges to non-profit hospitals in the law, specifically reductions in reimbursement rates for Medicare, the public health insurance program for the elderly, and cuts to funds for hospitals that serve a disproportionate share of Medicaid recipients, the healthcare program for the poor, Moody's said.

"Removing the mandate would make the negative features of reform loom much larger," it added.

Moody's said the federal government could turn to a voucher system in which individuals would receive public aid in purchasing health insurance, but the results for non-profits hospitals "would be more complex and hard to foresee."

Medicare, meanwhile, faces its own uncertain future. An annual report from its trustees released on Monday said that in 12 years it could become insolvent. (Reporting By Lisa Lambert; Editing by Leslie Adler)