HOSPITALS IN MEDICAID EXPANSION STATES SAW UNCOMPENSATED CARE COSTS DROP, FINANCIAL MARGINS INCREASE

ANALYSIS | BY JACK O'BRIEN | JANUARY 06, 2021

The study's authors conclude that hospitals in states that have not yet expanded Medicaid could benefit from a financial perspective amid the ongoing COVID-19 pandemic.

Hospitals in states that expanded Medicaid under the Affordable Care Act (ACA) saw uncompensated care costs decline while financial margins and Medicaid revenues increased, according to a study published in Health Affairs Tuesday afternoon.

According to two researchers at the Urban Institute, from fiscal year (FY) 2013 to FY 2017, mean annual uncompensated hospital care costs as a share of total expenses dropped by 1.8 percentage points in Medicaid expansion states, while those same uncompensated costs increased by 0.5 percentage points in non-expansion states.

Similarly, hospitals in expansion states saw operating margins increase immediately after the expansion began in 2014, according to the study, rising by 0.54 percentage points in FY 2014 and 2.1 percentage points in FY 2015.

Meanwhile, hospitals in non-expansion states saw operating margins decline by 0.58 percentage points and 0.86 percentage points during the same period.

Related: Coronavirus Threatens Rural Hospitals Already at the Financial Brink

By 2017, the effects of Medicaid expansion on hospital finances were clear.

The expansion was associated with a $6.4 million decline in mean uncompensated care costs, (a 53.3% decrease relative to the FY 2011-13 baseline), and a 2.6 percentage point decline in "mean uncompensated care costs as a percentage of total expenses relative to the 2011–13 pre period."

The study's authors conclude that hospitals in states that have not yet expanded Medicaid could benefit from a financial perspective amid the ongoing COVID-19 pandemic.

"Medicaid could be an even more important source of revenue for hospitals, given the huge financial hit they are taking under COVID-19," the authors wrote. "At the same time, the effect of the pandemic may be so large that it overshadows some of the differences that have emerged between expansion and nonexpansion states in the years since 2014."

Related: Profit Margins Declined for Rural Hospital Types Except Nonprofit Critical Access Hospitals

This study marks the latest analysis produced by the Urban Institute regarding the potential impact of Medicaid expansion during the pandemic.

In June, a study supported by the Robert Wood Johnson Foundation estimated that if 15 states had expanded Medicaid, then an additional 4 million people would have been insured in 2020.
Related: Medicaid Expansion Could Have Covered an Additional 4M People in 2020

Jack O'Brien is the Content Team Lead and Finance Editor at HealthLeaders, an HCPro brand.