The Relationship Between Uncompensated Care and Hospital Financial Position: Implications of the ACA Medicaid Expansion for Hospital Operating Margins

Abstract

Objective: Medicaid expansion under the Affordable Care Act has reduced the number of uninsured Americans and, by extension, has reduced uncompensated care. However, whether these changes improve hospital finances is a complex question, and the answer depends on the relative payment amounts that hospitals receive from Medicaid, uninsured patients, and private insurers and the extent to which Medicaid coverage crowds-out private insurance. We explore these effects and identify the conditions under which Medicaid expansion will improve hospital finances.

Data: Nationally representative inpatient, emergency department, and outpatient event files from the 2001-2012 Medical Expenditure Panel Survey.

Study Design: We estimate average hospital reimbursements by payer source (Medicaid, uninsured, privately insured) in the inpatient, emergency department, and outpatient hospital settings and use these estimates to simulate the impact of changes in payer mix on uncompensated care and hospital revenues.

Principal Findings: Overall, hospitals receive 9 times as much reimbursement from Medicaid as from uninsured patients with the same conditions in the inpatient setting and 2.5 times as much in the emergency department and outpatient settings. Hospitals receive 1.5 times more for privately insured patients than Medicaid in the inpatient setting and over 3 times as much in the emergency department and outpatient settings. We find that very high crowd-out would be required to reduce inpatient revenue (70%) and moderately high crowd-out would be required to reduce emergency department and outpatient revenue (30%).

Conclusions: The financial impact of Medicaid expansion on hospitals will vary across care settings and conditions as well as the extent to which new Medicaid patients would otherwise have been uninsured or would have had private insurance.