Why Rejecting Medicaid Expansion Isn’t Easy

The need to fund safety-net hospitals puts expansion on the table in some states.
by | November 2014
Louisiana Gov. Bobby Jindal
Facing a budget gap, Louisiana Gov. Bobby Jindal privatized the state’s public hospitals. Pete Marovich/MCT

Louisiana -- with its parishes, its Continental system of laws and its Cajun-inflected way of life -- has always been unique among American states. But there’s another distinction that makes Louisiana different: It’s the only state that has for centuries maintained a network of public teaching hospitals to treat the poor and uninsured.

Now that system could be in trouble, thanks to recent state decisions and federal changes to the way safety-net hospitals are funded. As a result, Louisiana officials must figure out if they can maintain their safety net and still refuse federal Medicaid money. It’s a challenge the 22 other states that haven’t expanded Medicaid will likely encounter in the coming years.

Faced with a major budget gap in 2012, Gov. Bobby Jindal moved to privatize nearly all 10 of the state-run hospitals, which receive most of their funding from the federal government through the Disportionate Share Hospital (DSH) program. Today, more than a year into the experiment, the plan has certainly seen some clear successes. Patient wait times, for instance, have dropped dramatically. But the change has led to some unanticipated consequences as well. Privatization resulted in the closure of two hospitals, and instead of heading to any of the other now public-private facilities for care, uninsured patients started visiting private “nonpartner” facilities that don’t receive any DSH compensation.

The problem is that Louisiana’s pool of DSH funding goes almost exclusively to the now public-private hospitals. That’s causing short-term headaches as more nonpartner private hospitals take on indigent patients who previously went to now-shuttered public facilities. In one case, a hospital nearly closed its emergency room until the state offered $18 million in aid. But the long-term situation is what most worries critics in Louisiana and across the U.S.

The DSH program is scheduled for $18 billion in long-term cuts beginning in 2016. Federal lawmakers decided to phase out the program after Congress passed the Affordable Care Act; with more low-income patients covered by Medicaid, they figured, the DSH program would no longer be needed. But when the Supreme Court ruled that states can’t be required to expand Medicaid, the problem became much more complicated.

Some critics wonder how Louisiana -- with the threat of future cuts and a budget deficit that could top $1 billion -- could possibly maintain its system without embracing at least some form of expanded Medicaid.

Louisiana’s problem may be uniquely tough because DSH funding is concentrated among a few places and the state receives a whole lot of it because so many people are uninsured. But safety-net hospitals in other states face similar problems, especially in the absence of Medicaid expansion. In Georgia, for example, Elbert County is considering a tax increase to keep its safety-net hospitals alive. In Wyoming, state analyses of potential budget savings and complaints from hospitals of losing $200 million a year in uncompensated care are moving officials in the direction of expansion.

Louisiana officials argue immediate fears are overblown. Jeff Reynolds, undersecretary for the Louisiana Department of Health and Hospitals, says the surge of uncompensated care in nonpartner hospitals seems to be receding as patients adjust to the new system. Although the state is exploring more permanent solutions for private hospitals that are still serving a large number of uninsured patients, the impact of DSH cuts is expected to be low in the early years, Reynolds says, because reductions will reflect the number of uninsured patients that remain in each state.

Still, by 2020 total DSH spending will have fallen to half its historical level, dealing a major blow to any state that’s dependent on that money. In fact, cuts to DSH spending will add up to a $350 million shortfall between 2018 and 2020, according to the Public Affairs Research Council, a nonpartisan think tank based in Baton Rouge.

There are signs officials in Louisiana, at least, are recognizing that. The top two Republicans vying to replace Jindal have both said they’d accept Medicaid expansion with some conditions.