States without Medicaid expansion under the Affordable Care Act may benefit from proposed funding to close coverage gaps, in spite of other planned cuts to the public insurance program, according to researchers.
The current draft of President Joe Biden's Build Back Better Act includes provisions to increase healthcare subsidies and extend coverage, particularly for the 12 states in the Medicaid expansion gap and residents with incomes below the federal poverty level.
If the act passes, hospitals in these non-expansion states would receive more than $6.8 billion of new funds in 2022, an amount 15 times larger than the domestic policy bill's $444 million in planned reductions of Medicaid disproportionate share hospital allotments, according to an analysis by the Urban Institute.
"Hospitals can certainly survive this DSH cut," said John Holahan, senior fellow at the Urban Institute. "They're much better off having this legislation passed despite losing some DSH payments because of the benefits to the overall state economy, and the benefits to the state hospital system."
From 2022 to 2025, when the Build Back Better Act plans to distribute subsidies and new marketplace eligibility to people in the Medicaid gap, Holahan said states stand to gain significant spending, even with 12.5% cuts in disproportionate share hospital allotments.
Due to differences in populations, the net gains and losses would vary from state to state, he said.
In Florida, hospitals are projected to gain $1.7 billion in funding from added coverage and lose $33 million in allotments, resulting in a net gain of $1.6 billion in 2022. Texas hospitals would likely gain $1.6 billion and lose $157 million, acquiring a total of nearly $1.5 billion.
Substantial increases in spending would cause Georgia and North Carolina hospitals to exceed their reduced Medicaid allotments by more than $750 million and almost $900 million respectively.
Because adults up to the federal poverty level are already covered in Wisconsin under Medicaid, the state is slated to receive less in federal health subsidies, resulting in a small net loss in payments to hospitals for the Medicaid gap population, but an overall net gain.
While non-expansion states in general would benefit, Holahan said a smaller portion of individual hospitals could be worse off with the domestic policy bill's proposed changes.
Specifically, hospitals serving a large number of undocumented people could see more substantial funding cuts, and federal subsidies may not necessarily go to the same hospitals receiving reductions in disproportionate share hospital allotments.
The Urban Institute analysis does not take into account the act's proposal to partially drop the ACA rule requiring people to lack an "affordable" offer of coverage to be eligible for marketplace insurance, Holahan said. The bill also would increase cost-sharing subsidies for marketplace enrollees with the lowest incomes.
Both provisions would increase the number of people covered by marketplace plans, the total amount of subsidies paid, and hospital spending for people in the Medicaid gap.
While the American Hospital Association also seeks to close the Medicaid coverage gap, it does not support the planned financial cuts to the program in addition to Build Back Better Act funding as a way to fund coverage for the uninsured, an AHA spokesperson said in a statement.
"Medicaid DSH payments do not just support uncompensated care for the uninsured," the spokesperson said. "They also preserve hospital financial stability by filling significant shortfalls in payments for hospitals that care for large numbers of patients enrolled in Medicaid."
The Build Back Better Act would only provide enhanced subsidies and eligibility to people in the Medicaid gap for several years unless extended, but proposed cuts to allotments under the bill—and nationwide cuts under the ACA that have been repeatedly delayed—would be permanent.
Still, for at least several years, most hospitals' financial gains from closing the coverage gap and lowering the cost of healthcare for families below the federal poverty level should easily offset any reductions, said Katherine Hempstead, senior policy adviser at the Robert Wood Johnson Foundation, which funded the Urban Institute analysis.
"Hospitals have traditionally been strong advocates for coverage expansion because it reduces uncompensated care," Hempstead said in a news release.
