The Effects of the 2014 Medicaid Expansion on the Financial Health of Hospitals: Early Evidence from 2014
Uninsurance rates among adults declined in 2014 in response to the Affordable Care Act’s (ACA) major coverage provisions, particularly in states that expanded Medicaid. This increase in coverage could improve the financial health of hospitals by decreasing the proportion of patient volume and unreimbursed expenses from uninsured patients. This paper aims to estimate the impact of the Medicaid expansion on the financial health of hospitals, using the experience of hospitals in states that did not expand Medicaid under the ACA to serve as a formal counterfactual against which to assess the changes in hospitals in states that expanded Medicaid in 2014.
Study Design
We will use a difference-in-differences approach to estimate the impact of the 2014 Medicaid expansion on total hospital uncompensated care costs and operating margins. We will also explore other related outcomes, such as net patient revenues, payer mix, and utilization. We use cross-sectional data from the fiscal year 2009-2014 American Hospital Association Annual Survey Database merged with CMS Health Care Cost Report Information System. To take into account hospitals where the fiscal and calendar years do not align, we will estimate various robustness checks to the treatment variable (e.g., proportion of the year exposed to the Medicaid expansion) or sample (e.g., exclude hospitals exposed to the Medicaid expansion for fewer than 6 months).
Key control variables include:
- State and year fixed effects
- Hospital factors such as ownership type, size as measured by number beds, system membership status, and provision of substance abuse and burn services to control for costly services used by the uninsured.
- Market factors, such as county-level socioeconomic characteristics and measures on hospital beds, hospital competition, and managed care penetration from Area Health Resources Files.
Population Studied
We limit our analysis sample to nonfederal, general medical/surgical hospitals with financial data reflecting a full fiscal year. We also exclude hospitals in states used the ACA option to expand Medicaid before January 2014 (CA, CT, DC, MN, NJ, and WA).
Our analysis will be updated with 2015 data when they become available in December 2016.
Potential Findings and Conclusions
(The data for this analysis will be available by the end of 2015)
This study can provide valuable insights to states that are still deciding whether or not to expand Medicaid. In contrast to prior state-specific studies, this study will provide generalizable findings on the national impact of the ACA Medicaid expansion on hospital’s uncompensated care costs.
Consistent with earlier studies on prior coverage contractions and expansions (including early ACA expansion states), we anticipate that the 2014 Medicaid expansion could increase Medicaid admissions, reduce uncompensated care costs, and increase margins in states that expanded Medicaid under the ACA relative to those that did not expand. However, depending on care patterns in a state or local area, there may not be major reductions for some hospitals in uninsured admissions and uncompensated care costs.