Medicaid Expansion Opt-Outs and Uncompensated Care

The U.S. Supreme Court decision on the Affordable Care Act (ACA) ruled that Medicaid expansion move forward as an option for states. While ACA’s reforms were designed to move the U.S. toward universal coverage, the option for states to forgo Medicaid expansion may have unintended consequences regarding uncompensated care.

This article addresses the issue of payment reductions under the Medicare and Medicaid Disproportionate Share Hospital (DSH) programs. Using coverage and income data from the American Community Survey with state data on Medicaid DSH allotments and Medicare cost reports, this article analyzed two scenarios: (1) total DSH reduction if a state fully expands Medicaid; and (2) DSH changes if the state forgoes expansion.

Key Findings:

  • On average, hospitals would receive $194 in DSH funds per patient-day, assuming current funding. However, significant geographic differences in DSH funds would persist.
  • If every state expanded its Medicaid program and DSH-program changes were implemented, total DSH funding would decrease $56 per patient-day.
  • States forgoing Medicaid expansion through ACA may leave substantial uncompensated-care burden on hospitals if no changes to DSH formulas occur or a full expansion of coverage to the uninsured with incomes below the poverty line does not occur.

Understanding the fiscal implications is important for states to consider as they make decisions for its citizens and health care providers.

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