How the American Health Care Act’s Changes to Medicaid Will Affect Hospital Finances in Every State

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    Uncompensated care costs may increase by 78% in hospitals in Medicaid expansion states over 10 years
    Rural hospitals in states that didn't expand Medicaid face major declines in operating margins under AHCA

The American Health Care Act (AHCA), as passed by the U.S. House of Representatives, will reduce federal spending on Medicaid by more than $834 billion over the next 10 years. And the recently released Senate bill appears to cut Medicaid even more deeply. In addition to repealing the Medicaid expansion, the bills place caps on the federal dollars that states receive to provide health insurance to millions of low-income Americans, including the elderly, disabled, and people with opioid addiction.

We modeled the impact of this loss of Medicaid funding on U.S. hospitals and found that, over the next 10 years, hospitals in all states, but especially hospitals in Medicaid expansion states, will see an increase in uncompensated care—a treatment or service not paid for by an insurer or patient. We also saw declines in hospitals’ operating margins, particularly among hospitals in expansion states. Rural hospitals in nonexpansion states also would face marked operating margin decreases.

In the interactive state-by-state maps below, we present the estimated impact of the Medicaid provisions in the House-passed AHCA on the finances of all U.S. hospitals. The hospitals in the District of Columbia and the 31 states that expanded Medicaid are projected to see a 78 percent increase in uncompensated care costs between 2017 and 2026. Eleven of these states will see uncompensated care costs at least double between 2017 and 2026. For example, Nevada hospitals will see a 98 percent increase, West Virginia a 122 percent increase, and Kentucky a 165 percent increase.

In addition to growing uncompensated care, our projections indicate that under the AHCA, hospitals in most states will experience a decline in Medicaid revenues, even though the law restores Medicaid disproportionate share hospital (DSH) payments. Hospitals in Medicaid expansion states may experience a 14 percent drop in Medicaid revenues between 2017 and 2026, compared to a 3 percent anticipated reduction among hospitals in the 19 states that did not expand. Some states may see more dramatic drops. Arkansas hospitals, for example, are estimated to see a 31 percent decline in Medicaid revenue over the next 10 years.

More than 46 million Americans live in rural areas and depend on the hospitals located in those communities. There is already substantial financial pressure on rural hospitals; reports indicate that an increasing number are closing each year and many more are vulnerable to closure. Additional financial pressures on rural hospitals may be detrimental to their ability to maintain the current level of services for their communities. This analysis indicates that rural hospitals in expansion states will be hit hard by the Medicaid provisions in the AHCA. On average, rural hospitals in Medicaid expansion states may see an 18 percent reduction in Medicaid revenue, compared to a 14 percent decline for all hospitals in those states. For 10 states—including Michigan, New Mexico, Kentucky, and Nevada—rural hospitals would see a decline in Medicaid revenues of more than 20 percent between 2017 and 2026.

Operating margins—an important measure of a hospital’s financial health—for hospitals in all states are expected to decline over the 10-year period. This decline will be especially large for hospitals in expansion states as well as rural hospitals in nonexpansion states. Operating margins reflect income from patient care and not income from other sources such as parking, food service, and investments, and also take overhead expenses into account. Positive margins enable hospitals to expand capacity, invest in strategies to improve care, hire new staff, and modernize infrastructure to incorporate evolving technologies. On average, operating margins for hospitals in expansion states will drop to –5.3 percent in 2026 under the AHCA. This means that hospitals will lose 5 cents on every dollar of patient revenue.

Hospitals in 28 of the states that have expanded Medicaid are predicted to have negative operating margins under the AHCA by 2026. A few examples include Louisiana (–4.2%), West Virginia (–6.8%), Arizona (–6.0%), and Ohio (–1.8%). Hospitals in nonexpansion states including Maine (–10.3%) and Nebraska (–5.5%) also are projected to have negative operating margins in 2026. On average, rural hospitals in nonexpansion states also will have margins of –3.3 percent, compared to a zero margin across all hospitals (urban and rural) in those same states. Negative operating margins threaten the survival of the hospital, jeopardize the quality and safety of care, and impact the broader communities they serve.

The congressional bills to repeal and replace the Affordable Care Act would clearly weaken the financial position of our nation’s hospitals, especially those serving patients in Medicaid expansion states.

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Publication Details

Publication Date: June 23, 2017
Authors: Randy Haught, Allen Dobson, Joan DaVanzo, Melinda K. Abrams
Contact: Randy Haught, Senior Data Manager, Dobson | DaVanzo
E-mail: randy.haught@dobsondavanzo.com
Citation:
R. Haught, A. Dobson, J. DaVanzo, and M. K. Abrams, "How the American Health Care Act’s Changes to Medicaid Will Affect Hospital Finances in Every State," To the Point, The Commonwealth Fund, June 23, 2017.

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