Off the Charts Blog | Center on Budget and Policy Priorities

Health reform cuts supplemental Medicaid payments for hospitals that serve many low-income and uninsured patients because the need for such payments should shrink as more low-income people gain coverage through the law’s Medicaid expansion.  The Department of Health and Human Services (HHS) has now issued a proposed rule to allocate these cuts among the states — and the rule makes clear that adopting the Medicaid expansion is the right choice for states.

That’s true for two reasons.  First, under health reform the federal government will largely pay for the Medicaid expansion.  Second, the states will face cuts in these hospital payments — the so-called “disproportionate share hospital” (DSH) payments — whether or not they expand Medicaid.

Health reform cuts DSH payments by $18.1 billion through 2020.  The cuts start at $500 million in fiscal year 2014, when the Medicaid expansion first takes effect, but they grow sharply in later years, to $5.6 billion in 2019 and $4 billion in 2020.

Under the proposed rule, which applies to fiscal years 2014 and 2015, the size of each state’s cut will largely reflect the number of uninsured in the state and how well the state targets its DSH payments to hospitals with the most Medicaid and uninsured patients.  (Under health reform, President Obama and Congress directed HHS to take these factors into account in apportioning the cuts.)  A state’s decision whether to expand Medicaid will not be a factor.

To be sure, a state’s decision on the Medicaid expansion will likely affect its number of uninsured in coming years.  If HHS continues to take the number of uninsured people into account in allocating the cuts after 2015, states that don’t expand Medicaid could see somewhat smaller DSH cuts than other states because they will have more uninsured.  But, given the magnitude of the total cut in later years, such states will still face substantial DSH funding cuts.

The bottom line?

Hospitals and low-income people in states that expand Medicaid will be far better off.  Hospitals will gain much more in payments for the care they provide to large numbers of low-income people who will gain insurance through the expansion than they may lose in DSH payments.  And low-income people will be much better off with health coverage than if they remained uninsured.

House Budget Committee Chairman Paul Ryan and various other health reform opponents have been warning governors and state legislators not to adopt health reform’s Medicaid expansion, contending the federal government will renege on its financial commitment to pick up nearly all the costs of the expansion.

There is no evidence to support this claim.  President Obama had previously supported two Medicaid savings proposals that would shift some costs to states, which health reform opponents cited as showing that federal deficit reduction almost certainly will force states to bear a greater cost of the expansion.  But, he dropped those proposals from his latest budget and the Administration has made clear that it now opposes them.  Since the Supreme Court made the Medicaid expansion a state option, the Administration recognized that such proposals could deter states from adopting the expansion — and it has now reaffirmed the federal government’s commitment to financing nearly all expansion costs under health reform without new cost shifts to states.

Ironically, some of the same members of Congress who oppose the Affordable Care Act (ACA) and would like to repeal it — or, if they can’t achieve that goal, impede and limit it — are proposing cost-shift proposals of their own.  Last week, House Energy and Commerce Chairman Fred Upton and Senator Orrin Hatch, the Finance Committee’s top Republican, proposed a “per capita cap” on federal Medicaid funding, which would limit each state to a fixed dollar amount per beneficiary.  As we explain in a new Center analysis, federal funds under this proposal would likely become increasingly inadequate over time.  States would either have to devote more of their own funds to Medicaid or, as is more likely, cut their Medicaid programs deeply.  Earlier, as part of his budget plan, Chairman Ryan himself proposed to convert Medicaid into a block grant and cut federal funding for states by nearly one-third by 2023, in addition to proposing health reform’s repeal.

From the standpoint of their proponents, these proposals to significantly scale back Medicaid would advance two goals.  First, they would help secure major federal savings by cutting federal programs (especially programs targeted on people of modest means, who have only modest political influence) without having to scale back any tax breaks for high-income households.  Second, they would undermine a key element of health reform.

State officials should view the Upton-Hatch and Ryan Medicaid proposals in this light.  And, they should understand that such proposals face intense opposition — they cannot secure 60 votes in the Senate or a presidential signature.

The federal commitment to fund nearly all of the costs of the Medicaid expansion — as the ACA promises — stands.

As Mother’s Day approaches, state policymakers can do right by women — and the children they’ll have in the future — by taking advantage of health reform’s Medicaid expansion.

Up to 6 million uninsured women between the ages of 19 and 44 may become eligible for coverage if all states expand their Medicaid programs, as our recent fact sheet explains.  Because low-income women encounter glaring gaps in coverage under Medicaid, they are often only eligible for Medicaid while they are pregnant and for a short period of time after (see chart).  In states that choose to expand their Medicaid programs, health reform will fill in these gaps by ensuring continuous coverage for most women earning up to 138 percent of the poverty line (about $16,000 for an individual and $27,000 for a family of three).

Providing health coverage to low-income women irrespective of whether they are pregnant results in better outcomes for both the women who gain coverage and their future children.  Here’s why:

Health coverage before pregnancy allows women to receive preventive care like regular doctor visits, tobacco cessation programs, and substance abuse services.  When women have access to these services, their own health risks decrease and their babies are more likely to be born healthy.

And health coverage between pregnancies can improve the outcomes of subsequent pregnancies by giving women access to treatment for diabetes and hypertension, clinical interventions focused on combating family violence, depression, and stress, and other forms of parental support.

The New England Journal of Medicine reported encouraging new findings yesterday from the Oregon Health Study, a landmark, ongoing study of the state’s Medicaid program.  Medicaid beneficiaries were more likely than the uninsured to access preventive care, such as mammograms for women, and they had far less financial hardship caused by health care spending.  In fact, Medicaid coverage “almost completely eliminated catastrophic out-of-pocket medical expenditures.”  The researchers also report significant improvements in diagnosing depression and diabetes among the Medicaid recipients they tracked.  This report confirms earlier results from this study, which is often described as the “gold standard” for research.

These findings are receiving praise, and for good reason.  Both diabetes and depression are costly conditions; diagnosing and treating the diseases can improve patients’ health and quality of life.  And eliminating catastrophic out-of-pocket costs means that Medicaid provides financial security for low-income adults in the same way that health insurance protects higher-income people from economic setbacks.

The results come as some states are deciding whether to expand their Medicaid programs under health reform.  Some critics of Medicaid already are citing some of the study’s results, such as the lack of statistically significant changes in diagnoses or treatment of high blood pressure or high cholesterol, as a reason to oppose expansion.

A closer look at the Oregon study shows that its results don’t support that case, however.

In addition to reporting the important positive results, the researchers were careful to explain their findings’ limitations, including small sample sizes that prevented them from concluding that some trends were statistically significant.  For example, the authors did find that some patients’ cholesterol levels fell, but they suggested that they would need larger samples of patients to study before they could be certain of the findings’ validity.  Similarly, they left open the possibility that improvements in high blood pressure among Medicaid recipients could be clinically significant.

These results reflect an average of just 17 months of additional health insurance coverage.  We know that Oregon’s Medicaid recipients used more preventive care — a factor that may take years, or even decades, to show its full effect on their health.  Previous research, also published in the New England Journal of Medicine, pointed to reduced mortality in states five years after they expanded Medicaid to more low-income adults.

Louisiana Governor Bobby Jindal’s recent claims that expanding Medicaid will force people out of private coverage and into government health care are overblown.  The reality is this:  an overwhelming majority of people who would get coverage under a Medicaid expansion are low-income people who are uninsured, and they generally can’t afford private health care to begin with.

As we’ve noted before, states that expanded Medicaid in the past by raising income eligibility levels for adults reduced the ranks of the uninsured without undermining private coverage.  That’s based on an analysis of Census data and consistent with an extensive body of research.  In states that expanded Medicaid, about the same proportion of Medicaid-eligible adults had private coverage as in states that didn’t expand, but the expansion states had a much lower proportion of uninsured low-income residents.

Governor Jindal fails to recognize that many people who would qualify for an expanded Medicaid program under health reform work in low-wage jobs for small firms or service industries that typically don’t offer health insurance benefits.  In addition, coverage in the individual insurance market is unaffordable for most of those who would be eligible for the Medicaid expansion.  My colleague, Jesse Cross-Call, recently pointed out that:

• 81 percent of workers earning less than 138 percent of the poverty line — the threshold for qualifying for Medicaid under health reform — don’t get coverage through their employer.

• The median annual cost of single coverage in the individual market, including premiums and out-of-pocket costs, would consume more than one-third of the total income of a family of three at the poverty line.

The bottom line:  expanding Medicaid will not lead to low-income people dropping out of employer-based coverage.  But failure to expand would force them to remain uninsured and forego care.