Beyond the Byline: Democrats take punitive approach to sway Medicaid expansion holdout states

Modern Healthcare Senior Hospital Operations Reporter Alex Kacik and Politics Reporter Jessie Hellmann talk about House Democrats latest attempt to get states to expand Medicaid.

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Alex Kacik: Hello, and welcome to Modern Healthcare's Beyond the Byline, where we offer behind the scenes look into our reporting. I'm Alex Kacik, Senior Operations Reporter. Politics Reporter Jessie Hellmann is joining me today to talk about House Democrats latest attempt to get states to expand Medicaid. Thanks for joining me, Jessie.

Jessie Hellmann: Thanks for having me.

Alex Kacik: So Jessie, you recently wrote about policymakers latest push for states that have been holding out to expand Medicaid. You know, first they dangled extra COVID-19 relief funds to non-expansion states. Now they are taking a more punitive approach via disproportionate share hospital funds. Could you walk us through DSH funds and what the incentive is for a push for more states to expand Medicaid?

Jessie Hellmann: DSH is intended to help hospitals offset lower payment rates by Medicaid and also help them with the costs of uncompensated care. So, the latest proposal from House Democrats was included in the most recent version of the $1.75 trillion domestic policy package that they're working on, and it would basically reduce DSH payments in states that have not expanded Medicaid. So, that's about 12 states right now, including states like Texas and Florida, and hospitals are pretty upset about it.

Alex Kacik: The Affordable Care Act, you know, extended coverage to around 20 million individuals, many of whom joined the Medicaid program, and while hospitals benefited, they claim that a growing chasm between what the government pays for care and what it costs to care for the Medicaid beneficiaries diluted those gains. So, supplemental payments like DSH funding are intended to bridge the Medicaid shortfall and help pay for the remaining uninsured. So, you know, in addition to these cuts, correct me if I'm wrong, but outside of this proposal, there's the provisions in the ACA would already cut about, what was it, $44 billion in DSH funding come 2024, after they've delayed it a few times?

Jessie Hellmann: Yeah, exactly. So, those are scheduled to take effect for a few more years and they've been delayed several years already, and I think there's still some disagreement about how to move forward with that.

Alex Kacik: So Jessie, there have been some studies showing the financial benefits of this package. What did those show?

Jessie Hellmann: Yeah, so there's one study in particular from Brookings that showed that the financial outlook from hospitals would improve under this package, especially in non-expansion states because it would close the coverage gap for these 2.2 million people, by offering them ACA subsidies for a few years. So, the author of this study is arguing that this dynamic would offset the cuts in DSH, and I know hospitals have pushed back on that, pointing out that the subsidies are only temporary and it takes a while to get people to sign up for health insurance, but that's just something to keep in mind.

Alex Kacik: Got you, and I know it's hard to really bank on some of these provisions, staying in the bills, given some of the pushback. I'm wondering, is there a chance that any of this gets cut out, given some of the opposition from some of these lawmakers in their respective states?

Jessie Hellmann: So, it's not just Republican lawmakers that are concerned about the DSH cuts. There have been many Democratic lawmakers from non-expansion states that are upset that this was included in the most recent version of the reconciliation bill. They say that it wasn't, this provision in particular, wasn't discussed in hearings. They were kind of caught by surprise on it, and they're pushing to have these provisions removed from the final version. In particular Senators Warnock and Ossoff from Georgia, who have been pushing Congress to close the expansion gap, want to see the DSH cuts removed, noting the impact it would have on safety net hospitals who serve low-income patients. So, it's entirely possible that the provisions will change. We don't know yet when the House is going to vote on the bill and the Senate hasn't even put out legislative text yet. So, I think this fight is far from over

Alex Kacik: There are studies that show that in non-expansion states, the rural hospitals have a harder time remaining viable. You know, the sum payment is better than no payment at all, is the essential theory. So, you know, that means most of their bells turn into bad debt and charity care when uninsured get care and then profit margins of rural hospitals in expansion states fared much better than those in non-expansion states. So, hold-out states like Alabama in particular, have been pretty adamantly refusing to expand to Medicaid. What do experts think about the latest proposal to sway them?

Jessie Hellmann: So people I've talked to, particularly hospitals who have been pushing for these states to expand Medicaid from the beginning, aren't really convinced that this is going to be enough of an incentive to get states like Texas and Florida who have some mostly political oppositions to Medicaid expansion. They're not convinced that this is actually going to push them to do it. Like you mentioned, the COVID relief bill that was passed earlier this year offered increased FMAP funding to non-expansion states if they went ahead and expanded, and that didn't really entice any of the 12 holdout states to do that. So, now they're trying to take more of a punitive approach, threatening funding cuts, but people I've talked to think that that's really just going to hurt hospitals, especially safety net hospitals, that care for a lot of low-income people, and it's just not going to be enough of an incentive to get these states to change their minds.

Alex Kacik: What's the political mindset where these governors, you know, are refusing to budge on this? Because I know there's been like, like we've talked about, you know, many proposals to try to get them to change their ways when it comes to Medicaid expansion. Why is there such staunch opposition?

Jessie Hellmann: So, the amount of money that states would be expected to put forward to expand Medicaid, experts argue is really not a substantial amount when you consider the amount of money that states are spending on uncompensated care and poor health outcomes, that result in people in the coverage gap, not having health insurance. So, at this point, people think that the resistance to Medicaid expansion is mostly political. Medicaid expansion was part of the Affordable Care Act, which is still opposed by a lot of Republican politicians, mostly because it increased the federal government's role in healthcare.

Alex Kacik: Well, it's interesting though, because, you know, the Alabama Hospital Association for instance has been, you know, trying to lobby to their governor to shift for some time, because particularly on the rural health side, I mean a lot of their hospitals are rural, but they were saying it would be a lifeline. It's something where that's, you know, along with some of how the Medicare wage index is configured, it's one of the biggest issues to why I think about 84% of their hospitals operate in the red. So, yeah, it's interesting to see this, at least in some states, the dichotomy between the governors that plan and the respective hospitals and providers to see if they're viewpoints align.

So, there's also a proposal to close the Medicaid expansion gap. Democrats, as you said, as you reported, plan to circumvent state governors that haven't expanded Medicaid. What does that look like?

Jessie Hellmann: Yeah. So, in the House version of the domestic policy package, the 2.2 million people who fall in the coverage gap in non-expansion states would become eligible for ACA subsidies for a few years. It's not permanent. Hospitals and Democratic lawmakers in these non-expansion states wanted this fix to be permanent, but I think leadership just decided the money wasn't there. There are a lot of competing priorities in this bill. But people who fall in the coverage gap will at least get some help buying health insurance for a few years, and I think Democrats are hoping that they'll have control of the House and Senate when those subsidies expire. But some excerpts I've talked to and political observers think that that's a pretty bold risk to take, and they're concerned that if Republicans are in control of Congress, by that point, they'll just let the subsidies expire and the people and the coverage gap will just be right back to where they were before these subsidies took effect.

Alex Kacik: All right. Let's talk about some of the consequences of not expanding Medicaid. You reported that states experiencing the greatest number of rural hospital closures haven't expanded Medicaid, including Georgia, Tennessee, and Texas, according to the Charter Center for Rural Health. So, without access to coverage, what does this mean for rural hospitals, for seniors, for those living below the poverty level, children and mothers? What are some of the corollary impacts here?

Jessie Hellmann: Yeah, so many of these people just don't have any other access to healthcare. This would be their only option, and it's not available to them. Many studies over the years have shown that there are many benefits to expanding Medicaid, including better health outcomes, especially for people of color who disproportionately fall in the coverage gap. It's also been a good thing for rural hospitals. Rural hospitals and states that haven't expanded Medicaid are actually more likely to close.

Alex Kacik: So, if the latest incentive doesn't get more governors in the dozen non-expansion states to budge, do you expect there to be more attempts?

Jessie Hellmann: I think it's possible that this is one of their last chances for a while to close the coverage gap in these states. I don't think Republicans in Congress have shown any interest in dealing with the issue. And even though Joe Biden is still going to be President, I think the administration is kind of limited in what they can do on their own to deal with this. So, this domestic policy package I think, is being viewed by Democrats as one of their last chances for the time being, to fix it.

Alex Kacik: Good to know. Well, Jessie, thank you so much for breaking this down for us.

Jessie Hellmann: Thanks for having me.

Alex Kacik: All right, and thank you you all for listening. If you'd like to subscribe and support our work, there's a link in the show notes. You could subscribe to Beyond the Byline on Spotify or wherever you listen to your podcasts. You can stay connected with our work by following Jessie and I at modernhealthcare on Twitter and LinkedIn. We appreciate your support.