When States Reject Medicaid Expansion, Providers, Businesses Will Pay

John Commins, March 18, 2013

States that reject Medicaid expansion under the Affordable Care Act will subject the hospitals and employers within their borders to a considerable financial hit, separate analyses show.

At last count, 14 states have said that they would reject Medicaid expansion and three other states are leaning that way despite the federal government's assurances that it would pay 100% of the cost for the first three years of the expansion, and 90% of the cost after that.

An analysis from Moody's Investors Services found that safety net hospitals in states with high numbers of uninsured residents will suffer a double-whammy hit if the Medicaid expansion is rejected.

Under the ACA, disproportionate share payments will shrink by $17 billion each year by 2019 because of the assumed reduction of charity care that the federal government said will occur with Medicaid expansion. However, states that opt out of Medicaid expansion won't get the additional funding to offset the DSH payments cuts.

That will leave opt-out states with a choice of whether to compensate hospitals for the shortfalls with state money, which would strain state budgets, or leave hospitals to absorb the costs on their own, which would squeeze margins and increase rating pressure on the hospitals, Moody's said in its analysis, Reduction of Medicaid & Medicare Disproportionate Share Hospital Payments a Looming Challenge for States and Hospitals.

"It does beg the question, 'why not expand if the federal government will be paying for initially 100% of this and then down to 90% of it a few years out?'" Lisa Goldstein, associate managing director at Moody's, told HealthLeaders Media.

"One could scratch his head and say 'I don't get it.' To a certain extent, they are leaving money on the table. If you peel back one more layer it becomes political and a fundamental belief of what the role of government is as it becomes a political party issue."

John Commins

John Commins is a senior editor at HealthLeaders Media.

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