Curbing Medicaid expansion could cause $80 billion hit to providers

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Cutting Medicaid funding and halting the program's expansion would result in providers' revenues decreasing by about $80 billion, and uncompensated care on behalf of uninsured people would increase by $18.9 billion in 2026 due to declines in health insurance coverage, finds a report from the Urban Institute and the Robert Wood Johnson Foundation.

Among all provider types, hospitals would face the largest revenue losses ($31.9 billion) and burden of uncompensated care increases ($6.3 billion).

About 10.8 million more people would become uninsured if all states were to drop the Medicaid expansion, with the number of uninsured increasing by 50% or more in half of expansion states, data showed.

"With significant cuts to the Medicaid program potentially on the horizon, it is important that federal, state and local policymakers and stakeholders consider potential adverse effects on healthcare coverage, access, and affordability, and the financial vulnerability of certain providers," the report authors wrote.

WHAT'S THE IMPACT

Currently, the federal government pays 90% of costs for Medicaid enrollees who are eligible under the Affordable Care Act's Medicaid expansion in all 41 states that chose to expand eligibility (including Washington, D.C.). 

But House GOP leadership has proposed substantial cuts in federal funding to Medicaid over the next 10 years, potentially including per capita caps, work requirements and a reduction of the 90% match rate (known as the enhanced Federal Medical Assistance Percentage, or FMAP) for the ACA expansion population to each state's general matching rate, which varies by state from 50% to 74%.

The study cited evidence that Medicaid expansion contributed to significant gains in health insurance coverage, and improvements in access to care and low-income families' health and financial well-being, and has had a positive impact on hospitals' and other providers' financial health. That, the authors said, is due to declines in providers' uncompensated care burdens – that is, reductions in unreimbursed expenses attributable to uninsured patients and increases in revenue from newly covered patients.

The declines in provider revenue resulting from the GOP's proposed cuts are around four times larger than the estimated losses that providers would face if enhanced ACA tax credits were to expire, numbers showed. 

Because lower spending on healthcare services means lower revenue for providers and fewer services rendered, the resulting decline in revenue could have adverse consequences, particularly for hospitals that are already financially at risk, the authors said.

Losses in revenue from states dropping the Medicaid expansion could put more hospitals at risk and potentially lead to large increases in rural hospital closures, the report found. In addition to having negative spillover effects on the local economy, hospital closures could reduce access to and use of hospital services, increasing the mortality risk for heart attacks, unintentional injuries and time-sensitive conditions.

THE LARGER TREND

This week, the Congressional Budget Office projected that the GOP's proposed $880 billion in spending cuts would not be possible without slashing Medicaid.

CBO's baseline budget projections show mandatory outlays for Medicaid, Medicare and the Children's Health Insurance Program (CHIP) will total $8.8 trillion between 2025 and 2034. Medicaid accounts for 93% of the total, at $8.2 trillion.

Medicaid expansion enrollment increased last year due to seven states implementing expansion in 2020 or later, as well as adoption of the continuous enrollment provision, a pandemic-era policy that prohibited states from disenrolling people from Medicaid in exchange for enhanced federal funding, a January KFF study found.

Even with the unwinding of the continuous enrollment provision starting April 1, 2023, enrollment in Medicaid expansion today is higher than it was in 2020, KFF found. The number of marketplace enrollees increased by 10 million people nationally, almost doubling between 2020 and 2024, and the number of Medicaid expansion enrollees increased by 6.2 million people.

Lowering the Medicaid expansion match rate from the current 90% rate would shift costs to states and likely result in decisions by many states to terminate coverage, according to KFF. About 4.3 million Medicaid expansion enrollees live in states with some type of trigger law that would end Medicaid expansion or require review of expansion coverage to mitigate increases in state costs if federal funding for the expansion is reduced.

Except for Florida, the states with the largest ACA enrollment as a share of population had adopted the Medicaid expansion. The five states with the lowest share of enrollment were Medicaid non-expansion states.

Jeff Lagasse is editor of Healthcare Finance News.
Email: jlagasse@himss.org
Healthcare Finance News is a HIMSS Media publication.