Obama Calls for Delay in Medicaid Cuts to Hospitals

If President Barack Obama's proposal to postpone Medicaid cuts to hospitals for one more year is enacted, it would likely complicate the politics of the Medicaid expansion.
by | April 10, 2013

In what's likely a recognition that not every state will expand Medicaid under Obamacare, President Barack Obama proposed in his budget Wednesday to postpone Medicaid cuts to hospitals for one year.

The president’s budget for the U.S. Department of Health and Human Services eliminates a planned cut of roughly $500 million to Medicaid disproportionate share hospital (DSH) payments in FY 2014. Those payments will instead be cut beginning in 2015, with the $500 million in 2014 cuts being spread instead over FY 2016 and FY 2017.

For full coverage of Obama's budget, click here.

The Affordable Care Act (ACA) included reductions to DSH payments, which are paid to hospitals that treat a large number of uninsured patients, starting in 2014. The rationale was that, with the law’s Medicaid expansion and extension of private insurance, hospitals would be treating fewer uninsured people. Policymakers assumed that all 50 states would expand Medicaid under the ACA, but then the U.S. Supreme Court ruled last year that states could choose whether or not to participate.

At last count, 25 governors have pledged their support for expanding the low-income insurance program, 14 have come out against it and the rest are still deciding. But even in states where the expansion has the governor's approval, it's not a done deal because it must pass the legislature first.

If the DSH cuts had continued as planned in 2014, hospitals in non-expanding states would have received smaller DSH reimbursements while still likely treating a larger number of uninsured patients than federal lawmakers had expected.

Hospital leaders said they were pleased that Obama proposed postponing the cuts.

The National Association of Public Hospitals (NAPH) “appreciates the administration's willingness to delay cuts to (DSH) payments until 2015, given the uncertain future of Medicaid expansion,” said Bruce Siegel, president and CEO of NAPH, in a statement. “But we're concerned the delay comes at the expense of higher DSH cuts the following two years.”

At a press conference announcing the HHS budget, Marilyn Tavenner, who oversees the Centers for Medicare and Medicaid Services, said postponing the reductions would allow states to complete their decision process about the Medicaid expansion.

The move, however, complicates the politics of the Medicaid expansion. Now, conservative states less inclined to expand can decide not to do so, knowing that hospitals in their state may not take a major pay cut. At the same time, though, the cuts are still scheduled to take effect a year later.

So under Obama's proposal, states would have an extra year to decide on the Medicaid expansion, but the cuts that have spurred many hospitals to lobby their legislators on the expansion are still coming.

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