Medicaid funding cuts could lead to an $80 billion hit to provider revenues in 2026, with uncompensated care costs rising by $18.9 billion, assuming a scenario where states choose to drop their expansion, according to a new report prepared by the Urban Institute with funding from the Robert Wood Johnson Foundation.
"This study illustrates a critical point: the massive coverage loss that would occur if funding for Medicaid expansion were to be cut would be paired with enormous financial hits to healthcare providers," Katherine Hempstead, senior policy advisor at the Robert Wood Johnson Foundation, told Fierce Healthcare.
"Hospitals in particular are very vulnerable as they would experience sharp declines in revenue along with increases in uncompensated care that they are required to provide. And the effects would ripple out from there, since hospitals are major employers in their communities, so layoffs and closures would have widespread economic impacts," she said.
Unspecified cuts to Medicaid have been floated in Congress and could potentially include work requirements, per capita caps and a reduction to the enhanced Federal Medical Assistance Percentage (which uses federal funds to cover 90% of enrollee cuts) for the Affordable Care Act (ACA) expansion population.
Forty states and Washington, D.C., have expanded eligibility under the ACA to date. A prior analysis from Urban Institute predicted that 10.8 million people would become uninsured if all states were to drop Medicaid expansion, while another from the KFF estimated about 20 million would lose coverage over the course of a decade.
Aside from expanded coverage for individuals, healthcare providers have benefited from Medicaid expansion by reducing delivery of uncompensated care to uninsured patients and broadly boosting care utilization.
In the analysis, which was built on the Urban Institute’s Health Insurance Policy Simulation Model, the group found that hospitals would take the largest hit compared to other providers with $31.9 billion of lost revenue and a $6.3 billion increase in uncompensated care burden.
Physician practices would see $6.4 billion of reduced revenue and a $2.2 billion increase in uncompensated care burden, according to the report.
Revenue across other care services—a broad bucket including home healthcare, dental care and care delivered by other types of providers—would fall $20.7 billion with those providers shouldering $6.6 billion in uncompensated care burden.
Finally, spending on prescription drugs would fall by $20.9 billion, with $3.8 billion in uncompensated prescription drug spending.
As for who would be on the hook for the $18.9 billion in collective uncompensated care spending, Urban estimates that slightly more than half would be picked up by providers, 30% by the federal government and 19% by state and local governments. However, the group’s researchers wrote, “if government uncompensated care funding is less than we estimate, providers would be responsible for more uncompensated care, and the uninsured would forego additional healthcare.”
Urban’s report also highlighted “substantial variation” in the spending estimates across the expansion states. They outlined cuts of more than 6% in eight expansion states, the highest of which would hit New Mexico (-9.2%; $1.3 billion), Indiana (-8.6%; $4.2 billion) and Oregon (-8.4%; $2.8 billion). Of note, California alone would see a $12.3 billion reduction in health spending and New York a $10 billion drop.
Declines would range between 4% to 6% in 15 expansion states and fall between 1% and 4% in the remaining 18 expansion states, the lowest of which would be Arkansas (-1%; $210 million), Nevada (-1.8%; $390 million) and South Dakota (-1.9%, $110 million).
For hospital spending specifically, the largest proportional declines would hit Indiana (-9.9%; $1.7 billion), New Mexico (-9.7%; $510 million) and Oregon (-9.5%; $1.1 billion), according to the Urban analysts. Absolute hospital spending declines would exceed $4.9 billion in California and $4 billion in New York.
The potential declines in provider revenue Urban analysts outlined in their latest report are about four times larger than those expected should Congress allow enhanced ACA tax credits to expire at the end of the year, another major federal lobbying focus for the hospital industry.
The reduced spending could be particularly devastating for financially strained hospitals—including hundreds of rural hospitals already at risk of closure.
"The effects would be particularly severe in rural states, for example, New Mexico, North Dakota and Arizona, where Medicaid funding is critical to the health of financially fragile health systems," Hempstead said.
Beyond the concerns for local economies, the report’s authors wrote that hospital closures “could reduce access to and use of hospital services, increasing the mortality risk for heart attacks, unintentional injuries and time-sensitive conditions.”