Medicaid Expansion Still Boosting Hospital Finances

January 06, 2021 - A study coming out of the Urban Institute shows that hospitals continue to reap the financial benefits of Medicaid expansion.

The study recently published in Health Affairs found that hospitals in Medicaid expansion states continued to face lower uncompensated care costs, increased Medicaid revenue, and improved operating margins three to four years after states decided to expand Medicaid, suggesting that improvements in hospital finances at the start of Medicaid expansions were not a one-time effect.

Specifically, Medicaid expansion was associated with a significant $6.4 million decline in mean uncompensated care costs by 2017, which represented a 53.3 percent reduction in uncompensated care costs compared to the pre-expansion period between 2011 and 2013, researchers reported.

The study also linked Medicaid expansion to an $8.6 million annual increase in mean Medicaid revenue, a 26.1 percent increase compared to the pre-expansion period, as well as 1.7 percentage-point and 2.2 percentage-point increases in mean operating and excess margins, respectively.

Many states decided to expand Medicaid when the option became available in 2014, while other states have elected to expand eligibility later because of state votes or Section 1115 waivers. To date, 39 states, including the District of Columbia, have adopted Medicaid expansion, according to Kaiser Family Foundation.

But the remaining 12 states may want to consider the option now that the COVID-19 pandemic has taken a significant financial toll on hospitals.

“As COVID-19 has brought hospitals to a time of great need, findings from this study provide important information on what hospitals in states that have yet to expand Medicaid could gain through expansion. In addition, our results show what is at risk and what hospital types may be disproportionately affected should any reversal of Medicaid expansions occur,” wrote the Urban Institute’s Fredric Blavin, a principal research associate in the Health Policy Center, and Christal Ramos, a senior research associate in the Health Policy Center.

The COVID-19 pandemic will likely weaken hospital finances, Blavin and Ramos explained, through potential increases in uncompensated care, given the rise in uninsurance and the spike in unemployment, and revenue losses due to cancellations or delays of elective care during COVID-19 surges.

Hospitals in the US have already lost approximately $202.6 billion between March and June 2020 alone, with that number on track to increase to $323 billion through the end of the year, according to estimates from the American Hospital Association (AHA).

Hospitals in Medicaid expansion states were likely at an advantage when COVID-19 hit in terms of their financial performance, the Urban Institute study indicated.

However, recent efforts to undermine Medicaid expansion efforts could harm the financial performance not only hospitals in states that chose to expand the program, but also those in states that did not.

“Medicaid could be an even more important source of revenue for hospitals, given the huge financial hit they are taking under COVID-19,” Blavin and Ramos wrote. Therefore, Medicaid expansion is “an important policy tool to continue supporting” hospitals addressing the COVID-19 pandemic, they explained.

The Trump administration, however, has sought to reverse Medicaid expansions by attempting to repeal the Affordable Care Act (ACA) and granting states more flexibility in their Medicaid programs, including Section 1115 Medicaid demonstration waivers to include work requirements and for states to receive some Medicaid funding as a block grant.

While the efforts to repeal the ACA have been unsuccessful and are unlikely to be a threat to Medicaid expansion under the Biden administration, the Section 1115 waivers could affect the positive impact expansions have had on hospital finances.

“Policies that erode Medicaid coverage, enrollment, benefits, and reimbursement have the potential to erode the financial gains that hospitals have seen as a result of expansion as well,” Bavin and Ramos stated.

President-elect Joe Biden has supported Medicaid expansion under the ACA and could revise current demonstration waiver policy to expand coverage or reverse waiver policies that limit coverage, Kaiser Family Foundation states.

The President-elect could also expand Medicaid coverage by extending the public health emergency, which temporarily increases the Medicaid match rate and implements a number of other Medicaid coverage policy options during the period; expand outreach efforts for Medicaid and Marketplace coverage; and/or propose more targeted legislative changes to encourage states to adopt Medicaid expansion.