Medicaid Expansion Was Supposed To Pay For Itself, Instead Hospitals Are Closing

Tyler Durden's Photo
by Tyler Durden
Sunday, Mar 10, 2024 - 01:20 PM

Authored by Mike Shedlock via,

10 states did not fall for the Medicaid expansion trap under Obamacare. The rest are suffering. Private payers (you, one way or another) make up the loss.

Medicaid Expansion Puts Hospitals at Risk

The Foundation for Government Accountability (FGA) reports Medicaid Expansion Dramatically Increases Hospital Shortfalls emphasis mine.

Medicaid expansion ushered in through ObamaCare has led to program enrollment growth well beyond what was promised or projected. While proponents argue that expansion is a silver bullet to keep hospitals financially secure, this is simply not true.

Because Medicaid does not pay enough to cover the costs to hospitals to provide patient care, hospitals rely on private payers to make up for these losses.

The lower payment rate and more Medicaid enrollees—especially those forced out of private coverage—mean increased Medicaid shortfalls, contributing to lower profit margins. This increases pressure on hospitals’ bottom lines, especially for rural hospitals where fewer patients make it more difficult to make up the shortfalls. The result is hospital closures in expansion states across the country. New data from the Department of Health and Human Services shows just how dire the situation is for hospitals in expansion states.

Not every state chose to expand Medicaid when given the chance beginning in 2014. This provides a real-life demonstration with nearly a decade of data, showing how covering so many able-bodied adults is affecting hospitals. This data can be invaluable for non-expansion states, as well as states that have expanded.

Hospitals in expansion states were in better financial shape before they expanded—but this has since flipped.

The reason for this flip in financial stability in expansion states is that hospitals count on private payers to make up for the reduced payments provided by Medicaid. In non-expansion states, private payers averaged payments of 128 percent of hospital costs, whereas Medicaid averaged only 76 percent of costs.

As a higher proportion of hospital services are billed to Medicaid because of expansion, there are not enough private payments to boost back profits. This is especially true in rural areas without a large patient base to draw from. Thankfully, as non-expansion states have resisted calls to expand, they have not suffered from this shift in payers from private insurance to Medicaid as expansion states have.

Because Medicaid does not pay enough to cover hospital costs, hospitals in most states have Medicaid shortfalls. That is, the difference between hospital payments from Medicaid and the cost of providing services to patients enrolled in Medicaid.

Key Findings

  • Medicaid does not pay enough to cover hospitals’ costs, meaning hospitals need to make up for the shortfall by charging private payers more.

  • In expansion states, hospitals’ Medicaid shortfalls have reached $22.3 billion, increasing by 117 percent since 2013.

  • If non-expansion states were to expand, their hospitals’ Medicaid shortfalls would more than double, from $6.3 billion to $13.2 billion.

  • Non-expansion states should continue to say no to Medicaid expansion, and expansion states should work to roll it back.

Financial Struggles

Several hospitals, especially in rural areas, have recently closed and more are at risk of closing. Another argument made for Medicaid expansion is that it financially helps hospitals, especially rural hospitals. But the data from expansion and non-expansion states does not bear this out.

The more people that are shifted from private insurance to Medicaid, the higher the Medicaid shortfalls, and the lower hospital profits. Hospitals are learning that you cannot become solvent by providing more and more services below cost. This is a surefire way to bankruptcy, not solvency. Nobody would call offering goods or services below cost a successful long-term business plan.

Reality has born this out, with a broad range of hospitals in expansion states closing across the country. In the South, Arkansas’s Crittenden Regional Health had a nearly $7 million surplus before expansion but soon closed after profits turned to losses. 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.

Expansion Would Double Shortfalls

Expansion would more than double the Medicaid shortfalls for hospitals in those states, the equivalent of losing nearly 100,000 hospital jobs

Bottom Line

This evidence is clear that any further expansion would only harm the bottom lines of more hospitals by doubling the Medicaid shortfall in any state that chooses to expand. States that have not expanded should continue to avoid the Medicaid trap and those that have expanded should roll it back. 

This was one of the easiest “I Told You So” advance predictions in history.

Best of all, we have a decade of data to prove it thanks to ten states that resisted the trap.

About to Get Much Worse

Thanks to mass immigration, rather the failure to stop it, things are about to get much worse. Denver provides the perfect example.

Please note Denver Health at “Critical Point” as 8,000 Migrants Make 20,000 Emergency Visits

The Denver hospital system is turning away local residents because it is flooded with migrant visits.

Denver Health has treated more than 8,000 migrants who lack legal documentation in the past year, totaling about 20,000 visits, according to Steven Federico, MD, a pediatrician at the health system.

The majority of these patients are coming from Venezuela and arrive needing treatment for chronic and communicable diseases after making the difficult journey.

In 2020, the health system had about $60 million in uncompensated care costs. Last year, costs sprung to $136 million, a quarter of which came from caring for non-Denver residents.

Obama claimed Medicaid expansion would pay for itself.

Whenever you hear that claim please run. Free government handouts are never free and most often backfire completely.

Congratulations to Alabama, Florida, Georgia, Kansas, South Carolina, Tennessee, Texas, Wisconsin, and Wyoming for avoiding the Obamacare expansion trap.

The rest of the states need to reconsider the Faustian bargain they entered.