off the charts

Medicaid Expansion Cuts Hospitals’ Uncompensated Care Costs

Recent research from Louisiana underscores how Medicaid expansion under the Affordable Care Act (ACA) could dramatically reduce uncompensated care costs — the cost of providing health care that goes unpaid by patients or insurers — for states that have not yet expanded. Those cuts in costs would mirror other states’ experiences after expanding Medicaid and would reverse the relatively flat trends in hospitals’ uncompensated care costs nationwide.

Uncompensated care costs as a share of hospital operating expenses rose in 2018 by 0.1 percentage points according to a recent report from the Medicaid and CHIP Payment and Access Commission. That rise followed a similar increase the prior year. The modest changes in uncompensated care costs in 2017 and 2018 coincided with modest increases in uninsured rates during those years, and stand in contrast to the sharp decreases in uncompensated care costs from 2013 to 2015, immediately after ACA coverage provisions took effect. During that period, both uninsured rates and uncompensated care costs fell sharply in the states that had expanded Medicaid.

Changes in uncompensated care are strongly related to changes in uninsured rates. That’s unsurprising, as hospitals’ uncompensated care costs are mostly composed of charity care and debt expenses for the uninsured. As the major ACA coverage provisions took effect, charity care and bad debt among hospitals fell by $8.6 billion (23 percent) from 2013 to 2015. These declines were several times larger for states that expanded Medicaid than for those that did not. In the most recent data, as a share of hospital operating expenses, uncompensated care costs in Medicaid expansion states were less than half of the costs in states that had not expanded.

The recent trend of slight overall upticks in uncompensated care costs could turn into one of rapid declines if the remaining non-expansion states expand Medicaid, a recent Health Affairs study indicates. While many prior studies have demonstrated how Medicaid expansion reduced hospitals’ uncompensated care costs across all states, the recent Health Affairs study focuses on the experience of Louisiana, an expansion state that shares key similarities with many of the remaining 12 non-expansion states. Like Louisiana, most non-expansion states are located in the South. They are also similar to Louisiana in per-capita income. And before Louisiana’s expansion, its uninsured rates for the non-elderly population and trends in uncompensated care costs were similar to those of the remaining non-expansion states.

Louisiana’s expansion of Medicaid in 2016 was associated with a 33 percent reduction in uncompensated care costs as a share of total operating expenses among hospitals, the authors of the Health Affairs study estimate. The impact was particularly large for rural hospitals, for which expansion was associated with a 55 percent decrease.

Those decreases flowed from a substantial drop in the state’s uninsured rate among non-elderly adults, from 18.3 percent in 2015 to 11.8 percent in 2018. Considering the similarities in the remaining non-expansion states to Louisiana before its expansion, they too could expect marked improvements in their uninsured rates and uncompensated care costs if they expand Medicaid.