Hospitals expected to benefit two ways from Medicaid expansion

Washington Hospitals would see revenues go up by more than $300 billion over a decade as a result of declining uncompensated care costs if all states expanded their Medicaid programs in 2014, according to a study on the health system reform provision.

The research, conducted by the Urban Institute for the Kaiser Commission on Medicaid and the Uninsured, cited the potential cost savings and enrollment gains of expanding Medicaid up to an effective rate of 138% of poverty. States that choose this option would receive full federal assistance for the added spending in the first three years of the expansion. Eventually, states would take on a relatively small percentage of the additional coverage costs — no more than 10%.

Some Republican governors have rejected this provision of the Affordable Care Act and said they will take advantage of the U.S. Supreme Court’s June ruling stating that they can’t be penalized for refusing to expand Medicaid.

These governors argue that their states wouldn’t be able to sustain their shares of such a major expansion, but eventually it’s going to become difficult for states to walk away from the opportunity to receive the federal expansion funding, said John Holahan, PhD, director of the Health Policy Research Center at the Urban Institute and the primary author of the report, during a teleconference Nov. 26.

The federal government would end up supporting most of the additional costs incurred for the first decade of the expansion, the report determined. State spending over 10 years would increase by $76 billion, or less than 3%, compared with a 26%, or $952 billion, increase in federal spending. Full-scale expansion also would mean that more than 21 million additional people would enroll in the program by 2022, reducing the total numbers of uninsured.

With more people on Medicaid, states would spend fewer dollars on uncompensated care costs that accumulate from hospitals treating uninsured patients. Over 10 years, the report estimated that these costs would drop by about $183 billion, and hospitals would take in $314 billion more in revenue than they would if no states expanded Medicaid.

Hospitals in states with the greatest proportionate coverage increases would see their payments rise the most. Spending on hospitals, for example, “would increase by 28%, 24% and 23% in South Atlantic, East South Central and West South Central states, respectively, if states add the Medicaid expansion to other ACA policies,” the report said.

Other research yields similar results

Other studies have made similar cases for expanding Medicaid. The University of Missouri, in a study commissioned by the Missouri Hospital Assn. and the Missouri Foundation for Health, determined that expanding Medicaid would boost the state’s economy and create jobs.

It’s a winning prospect for the state, said Herb B. Kuhn, president and CEO of the state hospital association, in a statement. “The economic activity created by adding $8.2 billion in federal spending to Missouri’s economy will generate nearly $856 million in state and local taxes throughout seven years. And, at a six-year cost of $333 million to the state, Medicaid expansion would be a net gain for state revenue.”

The American Hospital Assn. views Medicaid expansion as a positive development. “We would encourage states to continue going down this path,” said Molly Collins Offner, AHA’s director for policy. Each state ultimately will decide how hospitals are paid by Medicaid, however, “and that’s a factor the study didn’t or couldn’t anticipate.”

The Kaiser/Urban Institute study noted that these gains to hospitals would be offset partially by a $56 billion reduction in disproportionate share hospital (DSH) payments authorized by the ACA. DSH payments are used to compensate hospitals that treat low-income patients who can’t pay their bills.

The law was built on the assumption that all states would expand their Medicaid programs fully and create operational exchanges by 2014, resulting in more covered lives and a reduction in uncompensated care burden to hospitals, Collins Offner said. In the wake of the Supreme Court’s decision to make the expansion optional, hospitals in states that don’t expand Medicaid “could be faced with the continued burden of the uncompensated and a possibility of losing those supplemental funds.” It’s an issue that needs to be revisited by Congress, she said.

Beth Feldpush, vice president for policy and advocacy with the National Assn. of Public Hospitals and Health Systems, agreed that the DSH payments needed to be restored. For now, the working assumption is that not all states are going to take up the expansion, “at least not right away.”

For states, expanding Medicaid may seem like a good idea for the first few years, when federal match rates are at 100%, said Drew Gonshorowski, a policy analyst with the Heritage Foundation, a conservative research institution in Washington. But once the federal support starts being scaled back, it’s possible that states may have to dip into funding for other programs or increase tax revenues as they pick up larger shares of the costs of the expansion, he said.

States with high uninsured rates and no history of expanding their programs might find it more costly than those who already had extended coverage to adults, because the latter states will receive higher federal matching rates for those enrollees, according to the Kaiser/Urban Institute report. As a whole, states would save about $10 billion over 10 years from expanding their Medicaid programs, the report stated.