Medicaid is a financial boon for hospitals

One of the primary goals of the Affordable Care Act was to extend coverage broadly across the population: to the sick and uninsurable, to the healthy, and to the poor. A major mechanism to accomplish this was the ACA’s Medicaid expansion which provided states with a >90% federal match to open eligibility to any resident earning <138% federal poverty level. Subsequently, the Supreme Court made Medicaid expansion optional.

Now six years after the ACA’s passage, a natural experiment has emerged that compares states that opted to expand Medicaid against those that opted against. In a recent article, Nikpay and colleagues quantified the effect of a state’s adoption of Medicaid expansion on the payer mix seen amongst admitted hospital patients. The authors used AHRQ’s Healthcare Cost and Utilization Project (HCUP) database to compare 9 expansion states versus 6 non-expansion states in the second quarter of 2014.

The results were striking.

In the expansion states, the first two quarters of the year produced a significant increase in hospitals’ Medicaid receipts and a significant decrease in uninsured discharges. Medicaid discharges increased 20% while uninsured discharges decreased 50%. Non-expansion states noted no significant differences.

Interestingly, Minnesota – an expansion state – did not see a decrease in the uninsured share of hospital discharges during the study period. However, when put into historical perspective, this was expected: Minnesota expanded Medicaid three years prior to the study period.

On the whole, the results are not surprising. Numerous studies have already demonstrated that the ACA on whole has markedly improved hospitals’ payer mixes. In fact, it is well documented that the various sources of coverage expansion have led to lowest levels of uncompensated care in recent history. However, this study is notable in that it offers the most granular data to date on the subject. It quantifies the contribution of Medicaid expansion (a policy decision under complete state control) on the fiscal solvency of hospitals.

Medicaid as a program has been optional for the states since its inception in 1965. However, by the end of the following decade, nearly every state opted to participate. History is likely to repeat itself for the same financial motivations as its original incarnation.

While it may be politically expedient to resist expansion now, at some point the allure of fiscal stability is likely to dominate the decision-making process. It is hard to imagine any states will manage to perpetually resist this option. The authors of the study wisely note that 2017 will be the beginning of steep cuts to disproportionate share hospital payments. Only time will tell, but it is likely that (and the passing of the ) will bring the next wave of Medicaid Expansion.

Abstract

In states that expanded Medicaid, uninsured hospital stays decreased sharply and Medicaid stays increased sharply in the first two quarters of 2014. There was no change in payer mix in states that did not expand Medicaid. PMID: 26733707

Nikpay, et al. Health Affairs. 2016; 35 (1): 106-110.