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Medicaid Work Requirements Could Create Problems for Hospital Finances

Wallace Stephens
Medicaid work requirements could have a severely negative effect on hospital finances, reducing total revenues, raising uncompensated care costs, and decreasing operating margins.
Pending or current implementation of conditional work requirements on Medicaid enrollees could reduce hospital revenues, raise uncompensated care costs, and decrease hospital operating margins, according to a new study from The Commonwealth Fund.

In the study, researchers analyzed data to estimate how hospital finances could be affected in states with proposed or approved Medicaid work requirements using the Dobson DaVanzo Hospital Finance Simulation model. The primary sources of data were 2016 Medicare Hospital Cost Reports, which allowed researchers to determine expenses and revenues by payer, including Medicare, Medicaid, and others, for each hospital in the United States. The March Supplement of the Current Population Survey, conducted yearly by the US Census Bureau, was used to estimate the number of Medicaid enrollees in each state who would be affected by work requirements. Hospital revenues and costs for each payer were projected for a 10-year period from 2016 to 2026 based on trends in population growth, utilization, intensity of services, and inflation of medical costs.

Researchers first estimated the number of Medicaid enrollees in each state who would be affected by work requirements. Then, they approximated the number of enrollees who would lose Medicaid coverage in each state based on rates of Medicaid coverage loss in Arkansas, which was one of the first states to impose work requirements. Researchers then calculated the risk profiles of enrollees who would lose coverage based off their previous healthcare utilization. Finally, they estimated the number of enrollees who would become uninsured as a result of losing Medicaid coverage.

“This analysis demonstrates that imposing Medicaid work requirements could have a detrimental effect not only for people who could lose their health care coverage, but on hospital finances," According to David Blumenthal, MD, president of The Commonwealth Fund. "The way that states design these work requirements will play a big role in the severity of the loss.”

Effect on Hospital Revenues

Researchers examined the proportions of hospital revenue received from Medicaid to estimate the total financial loss that could be incurred from implementation of work requirements. Figures were estimated to be between $3.7 billion and $4.1 billion in 2019.

The impact of Medicaid revenues on hospital finances would vary as states have structured the details of their work requirements differently. Arizona, Arkansas, Michigan, New Hampshire, and Ohio imposed work requirements only on adult Medicaid beneficiaries who obtained coverage through expansion of the Affordable Care Act. Alabama, Mississippi, Oklahoma, South Dakota, Tennessee, and Wisconsin subjected traditional Medicaid enrollees to work requirements. Exemptions also vary by state, but most Medicaid enrollees would qualify if they were caregivers, full-time students, or determined to be medically frail.

Uncompensated Care Costs

As work requirements are implemented, more people are expected to lose healthcare coverage as a result. Researchers estimated the financial total of uncompensated care costs to be between $2.5 billion to $3.7 billion in 2019.

The majority of individuals who lose Medicaid coverage will not be eligible for financial assistance in the health insurance marketplace because their incomes will be below the poverty level or below 138% of the poverty level in expansion states, leaving them uninsured. Individuals who are unemployed or have jobs that do not offer employer-sponsored insurance contribute to uncompensated care costs. A large number of Medicaid enrollees who lose their coverage would become permanently uninsured and significantly impact uncompensated care costs.

Some states, like Arkansas, “lock out” Medicaid beneficiaries from re-enrolling for a certain amount of time after they lose their coverage. After the temporary “lock-out” period ends, they must prove they are working a minimum number of hours to regain their coverage. This causes extended gaps in coverage and leaves many individuals permanently uninsured. Uncompensated care costs would rise even if they lost their Medicaid coverage temporarily.

A large number of Medicaid beneficiaries would lose coverage in Medicaid expansion states. While hospitals in these states have previously benefited from reduced uncompensated care cost, they would instead become negatively affected by work requirements.

Reduced Hospital Operating Margins

Reductions in Medicaid revenue and rises in uncompensated care costs would reduce operating margins for hospitals in states that impose Medicaid work requirements. While hospitals in all states would be affected in different ways, a few major factors will influence their finances:
  • Hospitals in states that have a high Medicaid payer mix are more dependent on Medicaid revenue and would be more negatively impacted than those in states that have a lower mix.
  • The number of enrollees per state who are subjected to work requirements would determine how hospitals are affected. These numbers would vary depending on how states set age limits for exemption and determine whether work requirements would be imposed on traditional Medicaid enrollees, those in Medicaid expansion, or both.
  • Hospital uncompensated care costs would increase and operating margins would decline depending on whether Medicaid enrollees who lost coverage were able to obtain private coverage or whether they remained uninsured.
Entire communities could be affected when hospitals financially fail. Hospitals could afford to employ more individuals as their operating margins increase or remain high. However, as they decrease, many individuals would subsequently lose their jobs or, in dire circumstances, the entire hospital may be forced to close.

Effect on Rural Hospitals

Prior to the implementation of work requirements, a large number of hospitals in rural communities have recently closed as they were operating at a loss on patient care. Further reductions in operating margins for these hospitals could prove disastrous and force an even greater number of them to close, direly affecting many individuals and their corresponding communities.

“At a time when many rural hospitals throughout the nation have shuttered, the move to impose work requirements on Medicaid beneficiaries ultimately weakens hospitals. Because hospitals are often a major economic engine in a community, these work requirements can hurt the entire local economy,” said Allen Dobson, PhD, cofounder and president of Dobson Davanzo and Associates LLC, and an author of the report.

Reference

Haught R, Dobson A, Luu PH. How will Medicaid work requirements affect hospitals’ finances? The Commonwealth Fund website. commonwealthfund.org/publications/issue-briefs/2019/mar/how-will-medicaid-work-requirements-affect-hospitals-finances. Published March 14, 2019. Accessed March 20, 2019

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