Wall Street Journal: How Medicaid expansion torpedoes hospital finances

It has become a mantra with Kansas Democrat Governor Laura Kelly: any hospital closure is blamed on not expanding Medicaid.  The governor is on record saying that expansion would not save rural hospitals, but then she says the opposite to friendly press.

Now, as the Wall Street Journal reports, a recent study by the Foundation for Government Accountability finds that Medicaid expansion has harmed hospital finances.

While expansion does bring millions of dollars to the states that have done so, hospitals end up facing higher shortfalls and actually puts them at higher risk of closure, and over time, expansion will also cost taxpayers a lot of money.

Study authors Hayden Dublois and Michael Greibrok examined more than 4,000 hospitals nationwide, scrutinizing their federal financial filings. They found that in 2013, the final year before implementation of the Affordable Care Act — commonly known as “Obama Care” — hospitals in expansion states reported just over $10 billion in Medicaid losses.

“The most recent data, from 2021, show the shortfalls ballooning more than 115%, to $22.3 billion,” they wrote in the WSJ. “By comparison, the shortfalls in states that didn’t expand Medicaid grew by only 6%. When the data from 2022 and 2023 become available, they’ll likely show even bigger losses in expansion states.

“Such massive red ink is written into Medicaid’s flawed design. The program reimburses hospitals a mere 78% of what Medicare pays for the same treatments and procedures and 62% of what private health insurance pays. Expansion pushes far more people off private insurance and onto Medicaid, meaning hospitals make less on the same patients they may have seen before. And they’re seeing far more Medicaid patients than expected. As of last year, nearly 20 million people received Medicaid through expansion nationwide, compared to initial state estimates of less than seven million. All of them are able-bodied adults. Total Medicaid enrollment is more than 90 million.”

This math is something Kelly and other Medicaid expansion proponents either ignore or do not understand. 

A recent piece in the Kansas Reflector — which touts the “benefits” of expansion — noted (falsely) that 152,000 Kansans would be likely to enroll in the first year “with no additional cost to the state government.”

A new federal incentive to expand Medicaid covers 100% of the extra cost for three years, and it then drops to 90%.  However, many of the anticipated new enrollees (all children and some adults) are already eligible, and expansion doesn’t cover those people.  The federal reimbursement rate for those people is 61%, leaving state taxpayers to foot the bill for 39% of the costs.  An enhanced matching rate for all Medicaid participants applies for two years, but expansion will still cause Kansas taxpayers to pay a hefty price over time.

The FGA study says 35 million Americans were enrolled in Medicaid in 2000; by 2023, that number had ballooned to more than 100 million.

“Much of this growth can be attributed to Medicaid expansion through ObamaCare, with enrollment sitting at roughly 57 million before expansion,” the study authors wrote. “This is because the number of able-bodied adults signing up for Medicaid has dwarfed projections. Expansion states claimed that fewer than seven million would enroll in the program through expansion, and third parties projected roughly nine million, but actual enrollment was at least 19 million.”

Hospital losses balloon with Medicaid expansion

Medicaid does not pay hospitals enough to cover their costs, which FGA says is reflected in the trajectory of hospital profits.

As the table below shows, hospital profits in expansion states dropped by 67% between 2013 and 2021.

“One argument for expansion has been that getting people enrolled in Medicaid will reduce the charity care needed to be provided by hospitals at no cost,” the study authors wrote. “But the savings hospitals in expansion states have realized in reduced charity care is overshadowed by the increased Medicaid shortfall. Since expansion, charity care costs have been reduced by less than $4 billion in expansion states — three times less than the shortfall increase. Saving a dollar to spend three is not a recipe for success, and these shortfalls are putting hospitals in a precarious financial position.”

The authors noted one of the major arguments is the same one Kelly often makes — that expansion will save struggling rural hospitals — such as the recent closure in Herrington.

But, as the Sentinel reported, Herrington would have received perhaps $174,000 in additional reimbursements, far less than the $1.9 million in unpaid loans the hospital board is being sued for.

The authors note that providing more services below cost — which Medicaid expansion forces — is a “surefire way to bankruptcy, not solvency.”

“In the South, Arkansas’s Crittenden Regional Health had a nearly $7 million surplus before expansion but soon closed after profits turned to losses,” they wrote. “In the West, California’s Colusa Regional Medical Center also saw its profits turn to losses soon after expansion and was forced to close. In the Midwest, Illinois’s Westlake Hospital managed a surplus before expansion but by 2019 was operating at a nearly $7 million loss and was forced to close its doors.”

Moreover, expansion would more than double the Medicaid shortfall in Kansas and reductions in charity costs would not come close to making up for the shortfalls resulting form the reduced Medicaid payment rates.

In Kansas, the current shortfall is about $68.1 million, but Medicaid expansion would increase the loss by $75.2 million and put total hospital losses at more than $143.3 million — the equivalent of losing 1,148 hospital jobs. In the 10 states that have yet to expand, that shortfall increases by year by almost $7 billion in total to more than $13.2 billion, and the loss is equivalent to nearly 100,000 jobs.

Chair of the Kansas House and Human Services Committee Brenda Landwehr, (R-Wichita) has committed to holding a hearing on expansion, but Dublois and Greibrok advise against expansion.

“The Bottom Line: Medicaid expansion does not help hospitals,” the authors wrote. “Data shows it has been a huge negative for them. States that have refused expansion should continue to do so, while those that have expanded should seek to roll it back.

“Enrollment of able-bodied adults through Medicaid expansion has shattered projections. Since the Medicaid payment rate is lower than a hospital’s cost of service, this has driven down hospital profits by increasing the Medicaid shortfall. This shortfall is contributing to hospital closures and increasing price pressures on countless others.”