Saying No to ACA Medicaid Expansion Costs States Money

Twenty-one states have opted to not expand Medicaid under the Affordable Care Act, arguing that the expansion would be too expensive. But according to new research, the cost to hospitals from uncompensated care in those states roughly equals the cost of Medicaid expansion.

The study by economists at Columbia University’s Mailman School of Public Health and Northwestern University was released online today as a National Bureau of Economic Research working paper.

By analyzing 28 years of previously confidential, hospital-level financial data made available by the American Hospital Association, the researchers found that on average each uninsured person costs states’ hospitals about $900 in uncompensated care—defined as the cost of hospital visits for which the uninsured, on average, don’t pay. In states that do not expand Medicaid, hospitals will provide $6.25 billion in medical care to the uninsured. By comparison, the Kaiser Family Foundation has estimated that the Affordable Care Act's Medicaid expansion would cost states about $7.6 billion.

“In the end, the money that state governments save by not expanding Medicaid is roughly equal to the money their hospitals spend on the people who are uninsured as a result,” says Tal Gross, PhD, one of the paper’s authors and assistant professor of Health Policy and Management at Columbia’s Mailman School. “Money that states save by deciding to not implement the Medicaid expansion achieves savings for the government at the expense of local hospitals.”

Cost of Uninsured is Passed Along to Insured Patients

Hospitals are the insurers of last resort. By law, they are required to care for patients with or without the means to pay. But it's not just hospitals that foot the bill.  Hospitals may shift part of those costs onto everyone else by raising their prices, or if they succumb to this financial burden, by closing. “That way, all of us end up paying for the uninsured,” says Dr. Gross. “The money that states save by not expanding Medicaid is illusory — the state still ends up paying, just in a different way.”

Approximately 5.2 million individuals in non-expanding states will not receive coverage under the ACA. While hospitals receive some compensation for uninsured care, mainly from Disproportionate Share payments, in practice, payments are much lower than the cost of uncompensated care provided by hospitals. In 2012, uncompensated care exceeded $46 billion, approximately 28 percent of Medicaid payments for inpatient and outpatient spending.

The researchers found that hospitals absorb between half and three-quarters of the costs from uncompensated care. Non-profit hospitals bear the burden of serving as insurers of last resort; for-profit hospitals are largely unaffected. The researchers point to two possible explanations: (1) for-profit hospitals locate in areas with fewer uninsured people, (2) and they potentially bill more aggressively, incentivizing the uninsured to avoid them. 

On the Plus Side

The researchers estimate that insuring 25 million more Americans under the ACA would reduce the uncompensated care costs of hospitals by $22.5 billion, approximately 49 percent of the 2012 level.

“Medicaid directly benefits not only the citizens it covers but also the hospitals they visit,” says Dr. Gross. “Given that hospitals are an important political force at all levels of government the factors requiring hospitals to provide uncompensated care may thus have unintentionally assured Medicaid’s long-term political stability.”

Study co-authors include Craig Garthwaite and Matthew Notowidigdo, both from Northwestern.  The research was sponsored by the Robert Wood Johnson Foundation.

About Columbia University’s Mailman School of Public Health

Founded in 1922, Columbia University’s Mailman School of Public Health pursues an agenda of research, education, and service to address the critical and complex public health issues affecting New Yorkers, the nation and the world. The Mailman School is the third largest recipient of NIH grants among schools of public health. Its over 450 multi-disciplinary faculty members work in more than 100 countries around the world, addressing such issues as preventing infectious and chronic diseases, environmental health, maternal and child health, health policy, climate change & health, and public health preparedness. It is a leader in public health education with over 1,300 graduate students from more than 40 nations pursuing a variety of master’s and doctoral degree programs. The Mailman School is also home to numerous world-renowned research centers including ICAP (formerly the International Center for AIDS Care and Treatment Programs) and the Center for Infection and Immunity. For more information, please visit www.mailman.columbia.edu.