Hospital revenues will go down, uncompensated care costs will go up, but by how much?
Providers who serve Medicaid patients will have a financial impact if they are in states that impose Medicaid work requirements. With fewer covered Medicaid beneficiaries, the changes will result in negative financial consequences—revenues will go down, and uncompensated care costs will go up—according to a Commonwealth Fund issue brief.
The brief updates prior analysis of the financial impact that Medicaid work requirements may have (see Will Medicaid work requirements mean less cash for hospitals?, March 15, 2019). The prior analysis is updated through the incorporation of results of a recent study for the Commonwealth Fund, updated hospital financial data, and through expanding the analysis to additional states that are considering implementing work requirements in Medicaid.
Overview. At the time of publication of the brief, eighteen states total have either received approval of Section 1115 Medicaid waivers imposing work requirements as a condition of eligibility for Medicaid, submitted applications, or had bills on the topic approved by their legislatures. Specifically, nine states received approval, six states submitted applications, and three states had bills approved by their legislatures.
ACA expansion. Arizona, Arkansas, Idaho, Michigan, Montana, Nebraska, New Hampshire, Ohio, and Utah impose work requirements only on adult enrollees who obtain Medicaid eligibility through the Affordable Care Act (ACA) (P.L 111-148) expansion. Indiana, Kentucky, and Virginia will apply work requirements to both the traditional Medicaid and the ACA expansion populations. Six states that did not expand Medicaid—Alabama, Mississippi, Oklahoma, South Dakota, Tennessee, and Wisconsin—will apply work requirements to adults in the traditional Medicaid program.
Hospitals in states that expanded Medicaid will have the largest increases in uncompensated care in both dollars per hospital and in terms of percentage increases.
Estimated financial impact. The brief notes that Medicaid revenues will likely decline by 8 percent to 12 percent on average, and that uncompensated care costs will increase by 15 percent to 29 percent, on average, across all 18 states. That would translate to an increase in uncompensated care costs for hospitals of $1.5 billion to $2.8 billion in 2019, assuming that work requirements are fully implemented in 2019. Hospital operating income—meaning net patient revenues less operating expenses—could decline by $0.8 billion to $2.0 billion across all 18 states in 2019.
Findings. Medicaid coverage losses occurred because of implementing work requirements in nine states with approved Medicaid waivers. However, the degree of change to a hospital’s operating margins varied across the states. The following factors contributed to the differences:
- Medicaid payer mix. The higher the Medicaid payer mix, the greater the impact. Hospitals in states that have a high Medicaid payer mix are more dependent on Medicaid revenues and will be negatively impacted financially more than hospitals in states with a lower Medicaid payer mix.
- Higher age limits. States that set high age limits, and that apply work requirements to both traditional and expansion groups, will experience a greater negative consequence than other states.
- Loss of insurance. If a large portion of enrollees that lose Medicaid coverage are unable to obtain private coverage, hospital uncompensated care costs will increase and operating margins will decline.
Companies: The Commonwealth Fund; Dobson DaVanzo & Associates, LLC
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