Moody's: Expanding Health Insurance 'Credit Positive' for Arkansas Hospitals

A credit outlook report released Monday by Moody's Investor Service says the state Legislature's move to expand health insurance in Arkansas through the "private option" is good for the state's hospitals.

Moody's says the "private option" plan, which will use federal money to buy private insurance for uninsured Arkansans, will reduce those hospitals' exposure to unpaid medical bills.

"The approval [of the private option legislation] is credit positive for Arkansas hospitals because it increases health insurance coverage to a population currently without coverage," says the report, written by Daniel Steingart, a Moody's assistant vice president and analyst.

Moody's rates two adult hospitals in Arkansas: Baxter Regional Medical Center in Moutain Home and Washington Regional Medical Center in Fayetteville. The report says the plan will be particularly beneficial to Washington Regional, which has a 13.8 percent rate of self-pay patients. That figure is more than double the national median of 6.1 percent, the report says.

"Payer mix has a direct effect on hospital profitability, and self-pay patients typically end up with unpaid medical bills that hospitals write off as bad debts or charity," the report says. "Other Arkansas hospitals stand to benefit from a decrease in the uninsured population. According to the Kaiser Family Foundation, Arkansas’ rate of uninsured is 18 percent, higher than the national average of 16 percent." 

Uncompensated care costs are among several factors forcing hospitals to rethink their business models and, in some cases, explore consolidation. In Arkansas, state-owned University of Arkansas for Medical Sciences and privately held St. Vincent Health System has been exploring a possible partnership.

Non-Expansion Expansion

Gov. Mike Beebe signed the "private option" into law on Tuesday, ending a 100-day legislative session dominated by discussion of a Medicaid expansion. Both Democratic and Republican legislative leaders touted the plan as an alternative to expanding Medicaid's enrollment under the federal health care law. 

Under the new law, Arkansas would accept the money allocated for Medicaid expansion under the federal health care law, but would use it instead to buy private insurance for about 250,000 eligible low-income residents. Those who earn up to 138 percent of the poverty line -- or $15,415 per year -- would purchase subsidized private insurance through the state's insurance exchange.

The state will now seek federal approval for the plan, endorsed by U.S. Health and Human Services Secretary Kathleen Sebelius.

(The Associated Press contributed to this report.)