Separate and unequal — ACA and the safety net

Proponents of ObamaCare are celebrating the end of year one with reports of favorable results: More than 23 million people have coverage provided through the Affordable Care Act (ACA), including 10 million who were previously uninsured and 10 million more covered through the Medicaid Expansion program. Fans of the ACA are quick to remind us that year-two enrollment has started off well with a functioning website; over 6 million consumers selecting a plan in the first six weeks; and premium rate increases on par with the employer-based market. So what’s not to like? Plenty, say ObamaCare opponents: a growing entitlement program costing $2 trillion over the next decade; $500 billion in new taxes; and regulations that threaten to depress labor growth. In addition, despite ACA premium subsidies, the high out-of-pocket costs of the marketplace plans make healthcare unaffordable for many Americans and still, after five years, the ACA continues to lag in public approval.

Despite the debate, everyone can agree that the 25 percent reduction in the number of uninsured over the last year is good news. Even so, 31 million Americans are still without health insurance as we begin 2015. And the spillover effects of caring for those who remain uninsured are landing squarely in the laps of safety-net providers, mostly public and teaching hospitals. Safety-net providers have always assumed the care of the most vulnerable in our society, but their care is now threatened in some states because of two unintended consequences of the ACA: the state variation in expanding Medicaid and the declining public dollars that defray the cost of caring for the medically indigent.

{mosads}The ACA mandated that states expand their Medicaid programs for individuals and families with incomes below 138% percent of the federal poverty level — about $16,000 for an individual or $27,000 for a family of three. Low-income childless adults and working parents in states with lean Medicaid programs have historically made up the bulk of the chronically uninsured. The ACA expanded Medicaid beyond its traditional categorical nature in order to capture these populations. Some states, claiming federal overreach, challenged this new Medicaid requirement, and two years after the ACA’s passage, the U.S. Supreme Court ruled the Medicaid expansion constitutional but optional: the federal government could encourage but not compel states to expand their Medicaid programs. However, because of the large infusion of federal dollars to finance the expansion, the majority of states chose to participate. Currently 27 states plus the District of Columbia have expanded their Medicaid programs, driving the 17 percent increase nationally in Medicaid enrollment over the last year. At over 65 million enrollees, one in five Americans is now covered under Medicaid.

How has this variation among states played out for safety-net providers? A study looking at hospitals in 30 states reports a wide disparity between those states that have expanded Medicaid and those that chose not to expand. Hospitals in the Medicaid expansion states are doing well: Medicaid revenues now make up almost 20 percent of total revenue, up from 3.5 percent pre-expansion. Their “self-pay” charges — the charges billed to those seeking care without health insurance — have decreased over 40 percent, and the average overall charity care provided per hospital has dropped by one-third.

Hospitals in states that have not expanded Medicaid, particularly those serving the poor and uninsured, are not faring as well. Their Medicaid and self-pay charges remain steady, but average charity care has increased over 10 percent per hospital. Because these hospitals are in states that have chosen not to participate in the Medicaid expansion program, they will lose $168 billion in federal funds over the next decade. At the same time, new ACA taxes and fees will transfer billions of dollars from their state treasuries to help support those states with expanded Medicaid programs.

To make matters worse, federal dollars historically provided to safety-net providers who care for a “disproportionate” number of persons who cannot pay for medical services will no longer be available under the ACA. These disproportionate-share hospital (DSH) payments are expected to decline by almost half — $35 billion — between fiscal years 2017 and 2024. Many of the hospitals dependent on DSH funds are in states that have not expanded their Medicaid programs and are already in weak financial condition. This “double whammy” of increasing numbers of nonpaying indigent patients plus the decline of federal dollars to help pay for their care will surely challenge these hospitals’ ability to give vulnerable populations adequate access to needed services and treatments.

State decisions regarding expanding their Medicaid programs are beginning to produce two separate and unequal healthcare systems in America — one where a growing number of people have insurance and medical providers are paid, and one where the numbers of the uninsured remain high and medical providers struggle to remain financially solvent. Already some safety-net hospitals are considering denying charity care to those uninsured patients who may be eligible for subsidized coverage under the ACA, and others are considering helping low-income patients pay for subsidized marketplace premiums in order to retain coverage for catastrophic health events.

The Affordable Care Act is a clunky and complicated piece of legislation that remains controversial as to its merits and its deficits. Whatever the fate of ObamaCare, the current state disparity in expanding Medicaid and the reduction of federal dollars to defray uncompensated medical costs will negatively impact our nation’s safety-net hospitals. Although unintended in the original scope of the ACA, these consequences tell a cautionary tale about what happens when interdependent elements of a broad-reaching public policy are pulled apart. As the ACA faces yet another Supreme Court challenge this spring, other state-level imbalances may become apparent in the aftermath of the high court’s decision.

Engelhard is the director of the Health Policy Program at the University of Virginia School of Medicine’s Department of Public Health Sciences.