Saying “no” to Medicaid expansion hurts safety-net hospitals

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By Consumers Union on Friday, June 28th, 2013

On June 28, 2012, the Supreme Court upheld the 2010 Patient Protection and Affordable Care Act (ACA) — with a key stipulation: The Federal government could not require states to expand Medicaid eligibility, nor penalize them for failing to do so. A year later, only half of the states have decided to expand Medicaid coverage under the ACA. (You can see the latest on where each state stands with our new interactive map.)

Whether states like Mississippi, Louisiana and Texas  like it or not, the ACA isn’t going anywhere — and Medicaid expansion is an important part of making it work.  The healthcare law has several components, designed to work together to ensure healthcare for all.

To begin, failing to expand Medicaid leaves those most in need without any government assistance. In October, open enrollment starts in new health insurance marketplaces provided for by the ACA. People in certain income brackets are eligible for subsidies to help them purchase insurance through these marketplaces, enabling them to comply with the ACA’s “individual mandate” that all Americans have health insurance coverage. The subsidy structure was designed to work in concert with expanded Medicaid eligibility. Without Medicaid expansion, those who fall under the federal poverty level ($11,170 for an individual or $23,050  for a family of four in 2012) are ineligible for subsidies. Without subsidies and not qualifying for Medicaid, the vast majority of these people will not be able to afford insurance.

Fortunately, under a recent rule update, people who live in states that do not expand Medicaid eligibility will not have to comply with the ACA’s “individual mandate,” meaning they won’t be taxed for not obtaining insurance coverage they can’t afford. But their options for care might decrease anyway.

There is a lesser-known, important effect of not expanding Medicaid eligibility — one that stands to hurt safety-net hospitals, the ones that can’t turn you away regardless of your ability to pay. In 2011 (the most recent year for which data are available), U.S. hospitals spent more than $40 billion on uncompensated care (pdf). Hospitals rely in large part on federal funding (called Disproportionate Share Hospital payments, or DSH) to cover this loss. Because the number of uninsured was expected to drop as states expanded Medicaid eligibility under the ACA, the law reduces DSH funding over time. This reduction offsets increased Medicaid spending, making the ACA more affordable. But as states refuse to expand Medicaid, they throw a wrench in the works.

This week, the Washington Post’s Wonkblog illustrated this effect on Grady hospital in Georgia. Max Blau writes, “The Atlanta safety-net hospital might be forced to scale back its operations and defer millions of dollars worth of maintenance needs.”

No matter where the downsizing occurs, Atlanta’s indigent population will undoubtedly feel the burden. “Any elimination of clinical services in a safety-net hospital is going to impact somebody and impact somebody big,” [hospital CEO John] Haupert says. “It would mean reduction [of] services that are available to indigent patients.”

These states deal a double-blow to the working poor, who have the most to lose if their state leaders forgo Medicaid expansion. Not only will they be priced out of the insurance marketplace, but the hospitals they rely on will be forced to reduce services, ultimately decreasing access to care.

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