Changes in Hospital Uncompensated Care after the Introduction of the Healthy Michigan Plan

Research Objective: In April 2014, Michigan implemented the Affordable Care Act’s Medicaid expansion by establishing the Healthy Michigan Plan. By the end of 2014, over 500,000 adults were enrolled in the program. Current enrollment is approximately 650,000. This study estimates the change in uncompensated care provided by Michigan hospitals after the establishment of this program.

Study Design: The analysis is based on data from Medicaid cost reports filed by Michigan hospitals with the Michigan Department of Health and Human Services. The main analysis is based on data are from fiscal years 2013 to 2015, providing information on uncompensated care before and after Healthy Michigan Plan enrollment began in April 2014. For roughly two-thirds of all hospitals, data from 2016 are available, making it possible to examine changes between 2015 and 2016.

Population Studied: The population consists of all general acute care hospitals in Michigan. Cost report data are available for between 137 and 140 hospitals, depending on the year.

Principal Findings: Between 2013 and 2015, uncompensated care provided by Michigan hospitals fell roughly in half, from $1.1 billion to $552 million. Roughly 9 out of 10 hospitals experienced a decline in uncompensated care costs. For the average hospital, uncompensated care fell roughly in half, from $8.1 million to $3.9 million. Measured as a percentage of total hospital expenditures, uncompensated care provided by the average hospital declined from 4.8 percent to 2.6 percent. Data from 2016, available for a subset of hospitals, indicates that uncompensated care costs stabilized at this lower level.

Conclusions: Consistent with other research using national data from Medicare cost reports, these results provide clear evidence that the ACA Medicaid expansion has substantially reduced hospital expenditures on uncompensated care.

Implications for Policy: The reduction in uncompensated care is an important benefit of the Medicaid expansion. In anticipation of such effects, the ACA called for a reduction in payments through the Disproportionate Share Hospital program. Thus, the overall impact of the ACA on hospital finances will depend on how those cuts are distributed relative to the declines in uncompensated care.