WASHINGTON (Reuters) - Pension liabilities, expenses and contributions remain a burden on U.S. not-for-profit hospitals despite improvements in the investments used to fund the retirement systems, Standard & Poor’s Ratings Services said on Monday.
Large pension funding demands will likely “be a drag on the sector for several years,” it added.
“Low discount rates have hampered the improvement in funding levels despite a rebound in asset values during the past two years,” said S&P credit analyst Liz Sweeney said in a statement.
Pension plans use a “discount rate” to gauge the size of their obligations, and the lower the rate, the larger the obligation.
The retirement benefits promises made to employees pose only one challenge to the sector, S&P said, adding that many healthcare systems have redesigned their pensions. As pension gaps swell in many different areas - most notably state and local governments - employers are having to put more money into the systems, and they are worried that leaves less funding for other projects.
Many nonprofit healthcare providers have found ways recently to address “high pension contributions crowding out other needs like capital projects,” said S&P.
“We believe that health systems will continue to implement plan changes to seek the next level of cost savings within the context of organization-wide expense reduction measures,” it added.
Not-for-profit health systems and hospitals are also facing growing demand, changes from the 2009 healthcare law, and increasing stress on Medicaid, the health insurance program for the poor, and Medicare insurance for the elderly.
Reporting by Lisa Lambert in Washington and Caryn Trokie in New York; Editing by James Dalgleish