Marketplace Pulse: COVID-19 and the Coverage Gap

The Marketplace Pulse series provides expert insights on timely policy topics related to the health insurance marketplaces. The series, authored by RWJF Senior Policy Adviser Katherine Hempstead, analyzes changes in the individual market; shifting carrier trends; nationwide insurance data; and more to help states, researchers, and policymakers better understand the pulse of the marketplace.

The current resurgence in COVID-19 hospitalizations and deaths provides an object lesson on the importance of closing the Medicaid coverage gap. For the past week, the country has averaged over 2,000 deaths a day as the fourth wave of the pandemic takes its toll. And while many states are struggling with increases in cases and hospitalizations, the failure to expand Medicaid compounds the health and economic burden of the highly contagious Delta variant. Non expansion states, where racial inequities in access to healthcare are greater, are both at higher risk and have lower capacity.

Non-expansion states generally lag the nation in vaccination rates. They also tend to lead in the recent surge in cases, hospitalizations and deaths. Virtually every county in the twelve non-expansion states is currently classified by the CDC as “extremely high risk” due to high rates of community transmission. And while a number of other states are also facing crises with hospital and ICU capacity, the impact is one that non-expansion states are uniquely ill-equipped to bear.

A new analysis suggests that one third of hospitals could end the year with a negative operating margin as a result of the most recent wave of COVID-19 hospitalizations. The financial burden will grow as cases rise. A surge of patients imposes overhead costs on health systems that require extra equipment and staffing at a time when healthcare workers are in short supply and labor costs are rising. At the same time, reductions in elective surgery deprives hospitals of a critical source of revenue. Insurers have generally stopped covering patient cost-sharing for COVID-19 treatment, meaning that hospitals will have more trouble collecting often hefty payments from insured customers with high deductible plans.  

In non-expansion states, these problems are compounded by high rates of uninsurance, leading to far more uncompensated care. In this most recent wave of cases, hospitalizations are more common among younger adults, where uninsurance rates are generally the highest. Cases may also be more expensive. As shown in a recent study of blood pressure and glucose control, uninsurance in non-expansion states leads to higher rates of unmanaged chronic conditions, resulting in increased comorbidities and generally poorer health. This could mean lengthier and more expensive hospitalizations and poorer outcomes, including a higher risk of “long covid.”

Previous research on Medicaid expansion has demonstrated the positive effects on the financial health of hospitals that result from a sustained reduction in uncompensated care costs. A recent study showed that uncompensated care as a share of expenses declined significantly in states that expanded Medicaid compared to those that did not. Since then, this difference has persisted and widened. In 2017, uncompensated care accounted for about seven percent of expenses in non-expansion states, more than twice as high as in expansion states.

Even with federal aid allocated to providers through the CARES Act and other legislation, hospitals in expansion states retain a financial advantage in their ability to withstand the pressure of COVID-19. This financial duress is compounded by the fact that non-expansion states are disproportionately rural, and even before the pandemic, rural hospitals were already experiencing significant financial headwinds. Of 21 rural hospital closures since 2019, more than half (13) were in expansion states. A recent analysis of rural health systems argues they have “unique organizational, clinical, and financial vulnerabilities that make it more difficult for those hospitals to withstand surges in COVID-19 cases.”

The financial stability and capacity of a state's hospital system is a population health issue with implications for the health of all residents. Yet smaller rural and safety net providers will be in the greatest jeopardy, as will access to care for low income and uninsured residents. Both coverage and the viability of safety net hospitals are critical to the low-income populations impacted by COVID-19. A recent analysis notes the importance of Medicaid expansion to support the health care delivery system in the face of the pandemic: "Amid national concerns about the financial viability of hospitals, Medicaid expansion remains an important policy tool to continue supporting the institutions that are at the front lines of addressing the crisis of COVID-19."

The impact is not just financial. The justifiable fear of unpayable bills causes the uninsured to be less engaged with the health care system. Consequently the uninsured are less likely to be vaccinated, and less able to manage chronic conditions. This results in less testing or treatment when experiencing symptoms, with negative implications for individual health and the community’s ability to contain the virus. A recent study finds that COVID-19 mortality was at least 10% higher in non-expansion states. New research suggests the impact of uninsurance on the mortality burden of COVID-19 may be even greater. Counties with higher uninsurance rates also had a higher share of excess mortality not assigned to COVID-19, suggesting that avoidance of testing and treatment may have led to more underreported deaths.  

The case for closing the Medicaid coverage gap goes beyond even the differential and inequitable impact of a pandemic. Long before the emergence of COVID-19, the health and economic benefits of Medicaid expansion for individuals, communities, healthcare providers and state government have been amply and repeatedly demonstrated. In states that expanded, racial inequities in coverage and access to healthcare declined. Yet the experience of COVID-19 has led to an increased focus on this issue, and rightly so. The pandemic has been influenced by and has also exacerbated fundamental inequities in our society. Unequal access to healthcare is chief among them. Back in April 2020, a Congressional report on racial disparities called out closing the Medicaid coverage gap as an important priority for addressing racial disparities in the context  of COVID-19 relief and recovery, noting: “COVID-19 exposes just how deadly inequality can be.” Subsequent experience has shown that these concerns were well placed, and the time to act is now.