Hospitals in Kentucky are hemorrhaging money and laying off staff, all thanks to the KYNECT Affordable Care Act state health care exchange, according to a report from the Kentucky Hospital Association.

Those losses will only get worse over the coming years, the hospitals say.

Democratic Governor Steve Beshear established KYNECT as a state-run Obamacare health exchange via executive order in 2013, over the vigorous objections of Republicans in the state legislature.

Last month the Kentucky Hospital Association released a stinging indictment of the financial calamity KYNECT has imposed on them in a report titled “Code Blue,” which concluded in bold print: “The bottom line: Kentucky hospitals will have higher losses and lower operating margins due to the ACA [and KYNECT], with a projected net loss of $1 billion from 2014 to 2020.” That finding was based on “an independent analysis of the ACA’s impact on Kentucky hospitals” conducted by the Dobson/DaVanzo consulting firm.

The future of KYNECT should be one of the key issues disputed in this November’s gubernatorial election between Republican nominee Matt Bevin and Democratic nominee, current Attorney General Jack Conway.

Bevin wants to shut down KYNECT. Conway wants to keep it.

“The Medicaid expansion enacted under Obamacare is unaffordable for the taxpayers of Kentucky and should be repealed. This program is projected to cost Kentucky in excess of $150 million per year after 2016. … I would facilitate the transition of enrollees onto the federal health care exchange during the open enrollment period in 2016 and then dismantle the KYNect state exchange,” Republican Bevin told the Louisville Courier-Journal last month.

Democrat Conway said fellow Democrat and incumbent Governor Beshear’s KYNECT should stay in place, though he doesn’t rule out changes to it.

“Governor Beshear made Kentucky into a model state for insuring its citizens. I will look to build on his KYNECT successes, but am ready to make tough decisions about what we can and can’t afford. My priority will be ensuring the Kentuckians who now have insurance — especially kids — keep their insurance,” Conway told the Courier-Journal.

The Kentucky Hospital Association’s Code Blue report notes that though “[a]n August 2014 Gallup report found the state had reduced the number of uninsured Kentuckians from 20.4% of the population in 2013 to 11.9% by mid-2014. . . [t]he government’s success in expanding health coverage has come at a significant cost to Kentucky hospitals.”

“Many hospitals in the Commonwealth are now operating under severe financial stress due to major changes in the health system. These financial pressures, which include payment cuts to Kentucky hospitals projected to reach nearly $7 billion through 2024, have resulted in hospital staff layoffs and threaten to reduce the availability of hospital care, especially in rural areas. As a result, the value of expanded health coverage could be seriously compromised if some hospitals are forced to reduce services due to these financial pressures—jeopardizing the quality of care and requiring patients to travel outside of their home communities to obtain needed services,” the report continues.

The implementation of Obamacare and KYNECT in Kentucky is a case study in the unintended consequences of “well intentioned” governmental programs.

“The intent of the ACA was that the cuts would be offset, for the most part, by health care payments from people who had previously been uninsured. The original estimates by the Congressional Budget Office projected that half of the newly insured would be covered by private insurance and the other half by expanded Medicaid,” the report states.

“That has not been the case in Kentucky, however,” it notes:

Because Kentucky is a low income state, ranking 46th in per-capita income, the actual enrollment statistics reveal that 75% of the newly insured in the Commonwealth are covered by Medicaid, and only 25% have bought a private health plan. An estimated 11.9% of Kentuckians (approximately 521,000 people) remain uninsured.15 This is important because private health insurance pays health providers at a much higher rate than the Kentucky Medicaid program, which pays hospitals approximately 82% of what it actually costs to care for Medicaid patients. The difference between Medicaid payments and the actual cost is known as the “Medicaid shortfall,” which was estimated to be more than $300 million in Kentucky in 2013.16 With the addition of more than 300,000 new Medicaid patients under the expansion (bringing the total number of Kentuckians on Medicaid to more than 1.1 million) this shortfall is expected to grow by another $135 million per year.

The anticipated Supreme Court decision in King v. Burwell, expected to be handed down later this month, could have a significant impact on the 2015 race for governor in Kentucky.

In the event the court decides that the Obama administration’s regulation that makes residents of the 37 states that do not operate state exchanges eligible for health care insurance federal tax subsidies is not authorized by the 2010 Affordable Care Act, Bevin may come under pressure to keep KYNECT in place. Kentucky residents who have health insurance under KYNECT currently receive federal tax subsidies. Should the Obama administration lose King v. Burwell, residents of Kentucky transferred out of KYNECT into the federal health care exchange would lose the federal subsidies they currently receive.

A WHAS11/Louisville Courier-Journal Bluegrass Poll released in May one week before the Republican and Democratic primaries showed Conway had an 11 point lead over Bevin in a head-to-head matchup, 48 percent to 37 percent.