Early impact of the Affordable Care Act Medicaid Expansion on Hospital Uncompensated Care and Revenues

The main coverage provisions of the Affordable Care Act (ACA) – health insurance marketplaces and state Medicaid expansions – have resulted in as many as 17 million Americans gaining health insurance coverage, especially through the Medicaid program. In state debates hospitals have argued forcefully for Medicaid expansion because these dramatic changes should translate to a reduction in the cost of uncompensated care and improved financial position. This study estimates the impact of Medicaid expansion on Medicaid volume and costs, hospital uncompensated care, and hospital operating margins in 2014, the first year that Medicaid expansion went into effect. We use Medicare hospital cost reports from 2010-2014 to compare changes in outcomes between hospitals in states that did and did not expand Medicaid in 2014 in a difference-in-differences design. We estimate triple-difference models comparing the relative change in outcomes by Medicaid expansion status by ownership, pre-expansion disproportionate share hospital status, county-level uninsured and poverty rates, and state-level changes in the income eligibility threshold for childless adults.

We find that hospitals in Medicaid expansion states experienced increases in Medicaid discharges and revenue relative to hospitals in non-expansion states. Increases were more pronounced for hospitals in states with larger changes in income eligibility for low-income adults, and for disproportionate share hospitals, and Medicaid revenue increased more in counties with higher poverty and uninsured rates in 2013. Uncompensated care decreased in Medicaid expansion states relative to non-expansion states, but contrary to Medicaid discharges and revenue, the effect did not vary by disproportionate share status or county-level poverty or uninsured measures. Changes in Medicaid discharges and revenue, and uncompensated care did not vary by ownership status. Although uncompensated care fell for hospitals in Medicaid expansion states relative to non-expansion states, there was no relative change in hospital operating margins. However, operating margins fell for public hospitals relative to non-profit hospitals.

Our study provides the first estimates of the impact of the Affordable Care Act’s Medicaid expansion on payer mix, uncompensated care, and financial status measures by individual hospital characteristics for a near-census of general acute care hospitals. Our work shows that historic gains in coverage have translated into favorable changes in payer mix in the first year of the ACA’s major coverage expansions. While uncompensated care decreased, the lack of change in hospital operating margins suggest that Medicaid expansion does not result in immediate improvements in hospital finances. In fact, our results suggest that financial position may worsen for public hospitals.