Obamacare arbitrage boosts profit for hospitals

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August 15, 2014 by Tony Novak

Hospitals have found a way to arbitrage the Obamacare system to boost revenues and their bottom line. When an indigent patient without insurance shows up requiring expensive medical care, the hospital immediately enrolls them for insurance and donates the individual’s portion of the premium payment so that there is no cost to the patient. To avoid conflicts with federal regulations, the donations are funneled through a non-profit charitable organization. The federal government pays the remaining larger portion of the premium. After theĀ patient’s much larger medical claim is paid, the medical provider realizes a larger return on investment for the cost of the insurance premium they donated. There is little risk in this practice under current law and so it effectively works as an arbitrage opportunity.

This approach is being tested by a number of hospital systems across the country and may well prove to be the most profitable sector of post-reform health care finance. Health insurance companies oppose the practice since it always results in large losses that are eventually passed on to the other health plan members in the form of higher future premiums or reduced premium rebates.

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