Medicaid expansion would be a net gain for hospitals
Uncompensated care costs have been a pressing issue for hospitals in states that opted out of Medicaid expansion.
A proposed expansion of Medicaid under President Biden’s Build Back Better Act (BBBA) would increase funds for hospitals in several states, more than balancing out cuts to funding for uncompensated care. The findings, released in a report by the Urban Institute, address some of the outcomes of the proposed legislation’s impact on hospitals and providers.
Health care reforms in the BBBA are complicated, but their goal is simple: to expand health care coverage and affordability via the Affordable Care Act (ACA). The Obama-era health reform law has been successful on both counts for many Americans, but loopholes and gaps in coverage have emerged over the years.
One major problem for the ACA was the 2012 Supreme Court ruling that allowed states to opt out of the ACA’s original Medicaid expansion—a provision that expanded the levels of eligibility and funding for Medicaid programs, which are jointly administered by states and the federal government. Because of some states’ decisions to opt out, uninsurance rates among low-income Americans were considerably higher in those states—and uncompensated care costs for hospitals were a pressing issue.
The BBBA seeks to address this by closing the “Medicaid gap” in the 12 states that did not expand Medicaid. The proposal would increase subsidies for that population, while cutting back on disproportionate share hospital payments (DSH), payments that were designed to address uncompensated care costs for hospitals serving Medicaid patients.
Increased payments outweigh proposed cuts
The Urban Institute analysis finds that in the affected states, new subsidies would amount to an increase of $19.6 billion in overall health care spending. That spending would translate to $6.8 billion in new funds to hospitals, which is approximately 15 times larger than proposed DSH cuts of $444 million.
“Provisions of the BBBA would extend enhanced Marketplace subsidies to people in the Medicaid gap,” the report said. “If those provisions were implemented, the increased federal subsidies that would flow to non-expansion states would be significantly larger than the proposed Medicaid DSH cuts while the subsidies are in effect.”
The effect of the subsidies would vary by state, in part because of differences in state populations and in part because of differences in the individual state Medicaid programs. Wisconsin, for example, would receive much less because its current program is more generous than most states that opted out. Even so, the analysis finds that the state would see a net gain overall in Medicaid funding under the BBBA.
Plenty of unknowns
The report comes with a number of caveats. The analysis was not able to break down spending for individual hospitals, so it’s possible some hospitals will be worse off after the BBBA changes. The researchers suggest that states and localities might be able to adjust funding in that case, from hospitals with more funds to those that are under-funded.
In addition, the current proposals call for expanded subsidies only from 2022 to 2025, while the DSH cuts would be permanent. Some lawmakers and analysts expect the Medicaid expansion to be renewed on an ongoing basis, but there are no guarantees that will happen. States and health care industry lobbyists would likely push for extending the BBB expansion of Medicaid.
The report outlines other issues that are currently unresolved: these include the future of uncompensated care pools in some states, and DSH cuts already required under the original ACA language—cuts that have not yet been implemented. “Nationwide Medicaid DSH cuts specified under the ACA have been repeatedly delayed, but they are now due to be implemented in fiscal year 2024; at $8 billion in that year, those cuts are much larger than the DSH cuts specified in the BBBA,” the analysis noted.
As the sausage-making continues, more changes to the proposal could be in the works. But the Urban Institute analysis does give some evidence that the current BBB plan for expanding Medicaid will not be financially harmful for U.S. hospitals.
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