Impact of ACA Medicaid Expansion on Hospitals’ Financial Status

EXECUTIVE SUMMARY: The Patient Protection and Affordable Care Act's insurance reforms were expected to have significant and positive implications for hospital finances. In particular, state expansion of Medicaid programs held the promise of reducing hospitals' uncompensated care costs as a result of expanding health insurance to many previously uninsured individuals. Recent research indicates that in the early phases of Medicaid expansion, many hospitals did experience a substantial decline in uncompensated care costs. However, studies to date have not considered whether Medicaid expansion resulted in payment shortfalls that offset some of what hospitals saved from lower uncompensated care costs. We examined filings submitted by hospitals to the Internal Revenue Service (IRS)-one of the few publicly available sources of national data on both uncompensated care costs and Medicaid payment shortfalls. We also compared changes in uncompensated care costs and Medicaid payment shortfalls for hospitals in expansion states with those in nonexpansion states. Our findings indicate that state expansion of Medicaid led to substantial reductions in hospitals' uncompensated care costs, but the savings were offset somewhat by increased Medicaid payment shortfalls. Therefore, studies that focus only on reductions in uncompensated care costs can overstate the benefits of Medicaid expansion on hospitals finances.