Executive Summary

As part of the Affordable Care Act’s (ACA) broader goal of expanding health insurance coverage, states are incentivized through increased federal funding to extend Medicaid benefits to residents with incomes up to 138% of the federal poverty level.

The federal government originally intended to expand Medicaid eligibility in every state by withholding federal Medicaid funding from states that refused to expand, but a 2012 Supreme Court ruling on the ACA stipulated that the federal government could not withhold funding from states that do not expand Medicaid. This effectively made Medicaid expansion voluntary and left the decision to participate to state leaders. As of 2019, more than 30 states have chosen to expand Medicaid. 

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Why is Medicaid expansion a key issue for providers?

Medicaid expansion presents challenges for providers both in states that opt in and out. Providers in participating states see an influx of patients that have historically received limited medical care and may suffer from undiagnosed conditions. Pressure on primary care physicians to expand access to care has increased, while their new patient loads often include patients that struggle to navigate the healthcare system effectively.

Where the states stand on Medicaid
As of April 1, 2019

In states that have not opted into the program, providers face financial concerns, as Medicaid reimbursement reductions by the federal government have taken effect and increase annually. Prior to the 2012 Supreme Court decision, hospitals assumed that there would be an increase in coverage and therefore utilization as a result of Medicaid expansion. However, in states that did not expand Medicaid, these cuts have taken effect without an increased number of beneficiaries to make up the difference in hospital revenue.

How does Medicaid expansion work?

States that decide to participate in Medicaid expansion must provide Medicaid coverage to all residents ages 19 to 65 who have a household income up to 138% of the federal poverty level, which amounts to about $34,638 for a family of four or $17,236 for an individual. This includes childless adults, who are not currently covered by Medicaid in most states.

The federal government provided 100% financing for those made newly eligible by the law from 2014 to 2016 (with that match phasing down to 90 percent by 2020). In general, costs incurred by states in administering the Medicaid program are matched by the federal government at a 50% rate.

A state’s decision to opt in or out of Medicaid expansion significantly impacts hospitals that currently serve large low-income and uninsured patient populations. Some coverage variation exists due to alternative models, such as Medicaid work requirements. Federal officials have approved work requirement proposals in nine states — AZ, AR, IN, KY MI, NH, OH, UT, and WI — though requirements are the subject of court challenges in some states. In each of those states, the requirements would apply only to people who gained Medicaid coverage under the expansion promoted by the ACA.

How does Medicaid expansion affect providers?

Clinical

In 2013, prior to the major ACA coverage expansion, people of color were at much higher risk of being uninsured compared to whites, which often meant a resulting disparity in access to affordable health care. Medicaid expansion has helped to narrow that insurance gap. However, while increases in coverage may enable providers to better serve these populations, providers often struggle to meet the unique health needs that are associated with previously uninsured patients.

A previous lack of care puts newly insured individuals at risk for poorly managed chronic conditions. In one study, the CDC estimated that half of Americans are currently diabetic or pre-diabetic, underlining the critical need for primary care and population health initiatives. In addition, 80% of newly covered Medicaid beneficiaries with diabetes, hypertension, or hypercholesterolemia presented with at least one uncontrolled condition in the study. This may be due to limited ongoing medical care, as more than a third of expected new Medicaid enrollees in the study had not seen a doctor in the previous year.

Financial

Medicaid expansion has the potential to improve hospital finances in states with many poor and uninsured residents. Though the ACA includes hospital reimbursement reductions for Medicaid patients, hospitals in expansion states have generally seen increased operating margins due to reductions in uncompensated care and increased health care utilization. Hospitals in states that decided to expand produced greater reductions in average total out-of-pocket spending, average out-of-pocket premium spending, and average cost-sharing spending.

Provider organizations tend to advocate for Medicaid expansion because of the direct impact on coverage, access, affordability, and financial security.

Operational

In order to compete in a competitive marketplace, health systems must help patients use their new coverage and access care in a meaningful way. This is especially important for patients with poorly managed chronic conditions, patients who have historically used the emergency department as their primary source of care, and patients who may have one or more chronic conditions but are unaware of their conditions due to their lack of consistent medical care. 

How might Medicaid expansion impact provider-supplier sales relationships?

Providers will require products and services that aid in increasing access for, retaining, and managing patients.

• Providers, especially those looking to build primary care capacity, must provide additional access points, as well as education on these options for new enrollees. Providers are showing interest in agreements, products, and services which can aid in this process.

• New patients with little brand knowledge or loyalty are key target groups for new growth, marketing strategies, and the establishment of product or service distinction.

• Due to a large increase in patients with potentially mismanaged or undiagnosed chronic conditions, providers are interested in products or services that can aid in large-scale population health management.