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Kentucky’s Waiver Will Increase Uncompensated Care for Hospitals, Safety Net Providers

February 13, 2018 at 11:00 AM

Kentucky’s Medicaid waiver, which the Centers for Medicare & Medicaid Services recently approved, jeopardizes not just coverage for hundreds of thousands of beneficiaries but also the finances of hospitals and other safety net providers. Rather than test new ways to advance Medicaid’s core mission of ensuring that low-income people can get the health care they need — as waivers should do — Kentucky’s waiver will actually make it harder for low-income adults to stay covered. The resulting coverage losses will increase uncompensated care costs for hospitals and safety net providers, with rural hospitals facing especially serious consequences.

Since the Affordable Care Act’s Medicaid expansion took effect in 2014, hospitals, especially rural hospitals, in the 32 states that have expanded their Medicaid programs have seen significant reductions in uncompensated care costs. From 2013 to 2015, nationwide hospital uncompensated care costs fell by more than a quarter as a share of hospital budgets — a $10.4 billion drop — and expansion state hospitals saw their uncompensated care costs fall by roughly half. In Kentucky alone, hospital uncompensated care dropped by $1.15 billion in the first three quarters of 2014.

Kentucky’s waiver jeopardizes these financial gains. That’s because it will cause a 15 percent drop in adult Medicaid enrollment by its fifth year, according to the state’s own projections. Kentucky estimates a 1.14 million decrease in coverage months, which roughly equals 100,000 people losing coverage for a full year. That likely means that well over 100,000 people will experience gaps in coverage, for example due to the waiver’s six-month coverage lockouts for those who don’t meet new work requirements, pay premiums, report certain changes in their lives, or renew coverage in a timely manner. Moreover, coverage won’t start for most beneficiaries until the first day of the month in which they pay their first premium and, while adults with below-poverty incomes don’t have to pay premiums to get coverage, they must wait 60 days before it starts.

That means that many people will experience periods without insurance, leading to large increases in uncompensated care. Using the 2014 reduction in uncompensated care as a guide, a 15 percent drop in Medicaid coverage months will translate into roughly a $225 million annual increase in uncompensated care. The actual increase could be larger, since the uncompensated care savings from the Medicaid expansion have likely grown since 2014 as Medicaid enrollment has risen. In addition, this estimate includes only hospital costs, not the higher uncompensated care costs for physicians and other providers.

Uncompensated care costs will rise not only due to coverage losses, but also from an end to retroactive coverage. A feature of Medicaid since 1972, retroactive coverage lets hospitals and safety net providers get paid by Medicaid for the care they provide to people who incurred medical costs up to three months before enrolling in Medicaid if they were eligible for the program during that three-month period. Retroactive coverage is important to hospitals and other safety net providers because it pays for medical services that would otherwise have gone as uncompensated care. Under the waiver, a hospital would no longer get paid for, say, providing an emergency appendectomy or setting a broken bone for adults who are uninsured but Medicaid-eligible at the time of their accident.

From this combination of six-month coverage lockouts, delayed coverage dates, and loss of retroactive coverage, hospitals and safety net providers will see their uncompensated care costs rise, jeopardizing their ability to meet daily operating costs and maintain quality of care. Providers in other states should take note: Indiana’s recent waiver approval and pending waivers in other states include many of these same elements that could jeopardize their financial security as well.


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