Hospital revenue received from Medicaid expansion is “not sufficient” to “dramatically alter” hospitals’ bottom lines, according to a recent report by the Congressional Budget Office (CBO).
That’s why a report released by the Congressional Budget Office (CBO) earlier this month should be read by every state legislator in every state likely to debate expansion next year. In analyzing profit margins over the coming decade, the nonpartisan CBO concluded that Medicaid expansion will not make a material difference in hospitals’ overall viability.
The CBO paper modeled the impact of various provisions of Obamacare in 2025, and compared those outcomes with hospitals’ profitability in 2011, before the law’s major provisions took effect. Each scenario allowed CBO analysts to isolate the effects of separate provisions — for instance, the law’s reduction in Medicare payments to reflect improved productivity, expanded health-insurance coverage through Medicaid and the exchanges, and other payment changes. By analyzing the effects of expanded insurance coverage, and examining whether expanding Medicaid in more states would impact hospitals’ financial condition, CBO shows that such an expansion will not materially improve their solvency:
Differing assumptions about the number of states that expand Medicaid coverage have a small effect on our projections of aggregate hospitals’ margins. That is in part because the hospitals that would receive the greatest benefit from the expansion of Medicaid coverage in additional states are more likely to have negative margins, and because in most cases the additional revenue from the Medicaid expansion is not sufficient to change those hospitals’ margins from negative to positive. Moreover, the total additional revenue that hospitals as a group would receive from the newly covered Medicaid beneficiaries . . . is not large enough relative to their revenues from other sources to substantially alter the projected aggregate margins.
Oddly, the CBO then concludes — immediately after stating these findings — that “even so…expansions of Medicaid would benefit hospitals in those states financially.”
Bureaucrats, in my experience, aren’t exactly models of bravery when it comes to recommending policy changes. Therefore, it’s unsurprising that the CBO would list multiple ways Medicaid expansion won’t help hospitals’ bottom lines — and then endorse the status quo on Medicaid expansion.
Put simply, this CBO report rebuts the talking point used by many Medicaid expansion advocates that hospitals wouldn’t be able to survive in Arkansas without it. Notably, additional revenue from Medicaid expansion “is not sufficient in most cases to change…hospitals’ margins from negative to positive.”
Over the past few years, critics (like this author) have argued that Medicaid expansion is a program that benefits hospitals’ and insurance companies’ bottom lines at the expense of state and federal taxpayers.
However, with this new report, it’s not even clear to me any more that hospitals will benefit from Medicaid expansion — despite the eagerness of expansion advocates to assume what they cannot demonstrate.