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Uncompensated Care Dropping Fast in Medicaid Expansion States

But it's unclear whether the savings will be enough to help hospitals offset cuts from the Affordable Care Act.

Early evidence shows a dramatic drop in uncompensated care for hospitals in states that expanded Medicaid, according to a report released earlier this month by the Colorado Hospital Association. But it's unclear whether the savings will be enough to offset cuts from the Affordable Care Act (ACA).

The study, which provides the most comprehensive view yet of Medicaid expansion's impact on uncompensated care, analyzed data from 465 hospitals in 30 states in the first four months of Medicaid expansion. It found that unpaid care decreased by 30 percent in expansion states and remained essentially unchanged in non-expansion states. The report links an enrollment surge in expansion states to not only the reduction in uncompensated care but also the 25-percent decrease in people paying out of pocket. 

Uncompensated care cost the country about $46 billion in 2012, according to the American Hospital Association. It's been increasing the past several decades and risen at an even faster rate the last ten years.

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The news comes as others around the country -- from private hospitals to state governments -- are reporting substantial decreases in uncompensated care. For example, a survey of 42 Arkansas hospitals during the first three months of 2014 found a 24-percent drop in uninsured emergency room use and a 30-percent decrease in uninsured hospital admissions, according to Gov. Mike Beebe’s office. Similarly, Tenet Healthcare, a publicly traded company with more than 250 facilities in 14 states, reported a 33-percent reduction in uncompensated care in expansion states for the first quarter of 2014 versus a slight increase in non-expansion states. 

ACA Cuts

The money hospitals are saving on uncompensated care is especially crucial as they brace for cuts called for by the ACA. The Disproportionate Share Hospital (DSH) program, which helps fund medical facilities that serve large populations of poor patients, is set to endure billions of dollars in cuts to both Medicare and Medicaid DSH. 

The cuts were made with the assumption that expanding Medicaid would be mandatory for all states and would make up for losses. But since the U.S. Supreme Court made Medicaid expansion optional, hospitals face some financial uncertainty. The first $1.2 billion in cuts to Medicaid DSH have been delayed until 2016, but $546 million has already been cut from the Medicare DSH program. Cuts to Medicaid DSH will total $17 billion between 2014 and 2020 while Medicare DSH cuts will total $22 billion over the next five years

“Directionally, the trends have appeared, and I think the magnitude is about what was expected, so it does help cushion some of those DSH shortfalls. But ... we don't know if it makes up for [them],” said Chris Tholen, vice president of financial policy for the Colorado Hospital Association and one of the report's researchers.

For rural hospitals -- which have a higher percentage of older, poorer and less healthy residents per capita -- the anxiety runs especially high. States that didn’t expand Medicaid account for a higher percentage of the rural population, and previously uninsured people who purchased private plans through a health exchange are finding out-of-pocket costs unmanageable, said Maggie Elehwany, vice president of government affairs for the National Rural Health Association.  

“Even those individuals who finally have that insurance card are finding their plans have such especially high deductibles that they’re delaying care, or if they do show up in that emergency room, it’s so high that they’re not able to pay it, so [hospitals] are still providing a lot of uncompensated care and charity care,” she said.

Looming Uncertainties

Other questions about hospital financing and the costs of expanding Medicaid won’t have quick answers. Key among them are what expanded coverage will do to costly emergency room use and what kinds of health problems new enrollees will have. Studies in Oregon and Massachusetts have linked expanded coverage to more ER use, and some experts say the newly insured will enter the medical system with chronic conditions that went undiagnosed for years.

“With the likely permanent increase in ER use, Medicaid paying 40 percent of commercial [payments] and the loss of DSH, the ACA is far from the answer to hospital financing problems,” said Joe Antos, a former assistant director for health and human resources at the Congressional Budget Office.

Chicago offers an early window into the makeup of the Medicaid expansion population in major cities. Cook County expanded Medicaid a year early through a waiver from the federal government and collected data on every person who asked to enroll. Half hadn’t seen a doctor in a year and the top medical claims were hypertension, high cholesterol and diabetes. A quarter of Cook County's new enrollees had been hospitalized in the last six months prior to getting coverage and 19 percent said they were concerned about having a roof over their head in the near future.  

But what was once a $500-million annual bill for uncompensated care dropped roughly 10 percent in the last month of the fiscal year, said Steven Glass, the executive director of managed care for Cook County’s health system. For now, costs may be higher from increased utilization among the first wave of enrollees, but Glass said he’s confident the expansion will ultimately lead to savings.

“If we are successful in not only providing people with a card but providing people access to care in a meaningful way that helps stabilize their health conditions, absolutely costs will go down in the future,” he said. 

Chris covers health care for GOVERNING. An Ohio native with an interest in education, he set out for New Orleans with Teach For America after finishing a degree at Ohio University’s E.W. Scripps School of Journalism. He later covered government and politics at the Savannah Morning News and its South Carolina paper. He most recently covered North Carolina’s 2013 legislative session for the Associated Press.
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