- 63 percent of potential newly eligibles under Medicaid expansion in NC already have private insurance
- Shifting people from private insurance to Medicaid drives up insurance premiums
- NC hospitals already rely on more than $1 billion in federal subsidies to break even on Medicaid patients
- Every dollar spent to expand Medicaid will be piled onto the backs of future generations in the form of greater government debt
One of the benefits of Medicaid expansion that supporters tout is that extending coverage to currently uninsured people will reduce the costs of uncompensated care to hospitals.
But this is just a shell game that shifts costs onto the backs of future generations by growing the already massive national debt.
Perhaps the latest such example of this appeared in this News and Observer op-ed penned by former Republican state lawmaker Chris Malone.
“Hospitals across our state support this measure because the cost of care for uninsured North Carolinians is a burden that drags down their bottom lines – and raises the cost of insurance for everyone,” he wrote. “When we cover more people, that cost driver will be lifted, especially from rural hospitals that are struggling to keep their doors open.”
Stuffing hundreds of thousands of additional people onto our state’s already overcrowded Medicaid rolls introduces a whole host of new problems, which Civitas has detailed extensively.
But what about relieving hospitals of their costs of “uncompensated care” for the uninsured?
The issue isn’t as straightforward as most advocates present, and requires some additional understanding of the shell game involved in the web of Medicaid finances.
Let me explain. The costs of services provided to Medicaid patients is split between the state and federal governments. Currently in North Carolina, roughly two-thirds of the costs of Medicaid services are paid by the federal government, with the state picking up the tab for the other third.
Due to low reimbursement rates, however, the amount collected by hospitals for Medicaid patient services falls well below their costs. To make up this difference, the federal government allots funds to each state for additional payments to qualifying hospitals serving large populations of Medicaid patients.
As described in a 2017 North Carolina Department of Health and Human Services report, there are three major categories of supplemental payments to hospitals. One category is considered “deficit” payments, which helps subsidize public hospitals to cover the difference between Medicaid reimbursement rates and their cost of treatment. Another is called “Upper Payment Limit” (UPL) payments. UPL payments are designed to cover the difference between Medicaid reimbursements to the hospitals for services and what Medicare would have paid for the services (Medicare reimbursement rates are typically higher than Medicaid).
Both deficit and UPL payments are primarily funded with federal dollars. The state subsidizes roughly a third of these payments through hospital provider assessments and other fees.
While the first two forms of supplemental payments target Medicaid patients, the third form of payment, called Disproportionate Share Hospital (DSH) payments, is dedicated primarily to uncompensated care for the uninsured.
In what may surprise some, the size of Medicaid payment shortfalls for hospitals in North Carolina is larger than uncompensated care. According to a NC DHHS spreadsheet summarizing 2014 supplemental payments (the latest data available), a $1.2 billion shortfall existed between Medicaid reimbursements to hospitals and the costs of providing care to Medicaid patients for that year.
By comparison, the amount of uncompensated care amounted to $928 million.
There is, however, a significant difference in the amount of payments hospitals receive for those different categories of shortfalls.
The total amount of Medicaid supplemental payments came to about $1.4 billion, meaning that in the aggregate hospital total revenue for Medicaid patients, after the supplements are added in, come to more than their costs of care.
Conversely, the total amount hospitals received in DSH payments for uncompensated care came to only about $320 million, well short of the $928 million.
This information tells us that indeed, in the short run, shifting people from the ranks of the uninsured to Medicaid would be beneficial for hospitals because the federal government programs are more generous with supplements for Medicaid patients than they are when it comes to uncompensated care for the uninsured.
But does Medicaid expansion target only the uninsured?
According to a Foundation for Government Accountability analysis of Census Bureau data, 63 percent of newly-eligible North Carolinians under Medicaid expansion are currently covered by private insurance. This figure includes both people on employer-sponsored plans and those in the individual marketplace, including the Obamacare exchange.
Using estimates of 500,000 new Medicaid enrollees under expansion, that means roughly 315,000 people would shift from private insurance to Medicaid.
This massive transfer of people from private insurance to Medicaid would be devastating for hospitals – because private insurance plans pay reimbursement rates far higher than Medicaid. Hospitals will likely respond by raising rates still further on the remaining private insurance patients, making insurance less affordable.
Moving half a million people from private insurance and the ranks of the uninsured onto Medicaid would force hospitals to become even more reliant on the federal government Medicaid supplement payments to shore up their financial situations.
But with a federal debt exceeding $22 trillion, is that a wise, sustainable plan?
And given the federal government continues to run massive budget deficits every year, every dollar coming from the feds to cover Medicaid expansion and Medicaid supplements will be borrowed money, burying the next generation deeper in debt.
Such a heavy reliance on federal funds for a massive portion of the state budget will make North Carolina even more subject to the whims and fiscal mismanagement of Washington DC. The feds have already proposed a $4 billion cut to DSH payments to hospitals scheduled for later this year, would Medicaid supplement payments be next on the chopping block?
And what sort of hoops would North Carolina be forced to jump through to keep receiving the supplemental payments?
Medicaid expansion would not only stuff half a million able-bodied, working age, mostly childless adults into the already over-crowded Medicaid program, it would make hospitals far more reliant on funds from Washington DC. All new expenditures on expansion would be borrowed and saddled on to the backs of our children. And given the dire financial straits the federal government is already in, do we think it will prove to be a sustainable and reliable funding stream?
Financing for health care has become a shell game of ever-increasing costs being pushed more and more onto the next generation. Instead of throwing more insurance at the current unaffordable and broken system, legislators should address the actual causes of skyrocketing healthcare costs by unraveling the countless layers of government restrictions, mandates and interference.
