Affordable Care Act’s Medicaid Expansion Benefits Hospitals, Particularly in Rural America

Hospitals in states that expanded Medicaid coverage to low-income adults under the Affordable Care Act (ACA), particularly those in rural areas, have fared significantly better than hospitals in non-expansion states, based on recent published and unpublished research by the Urban Institute.[1]  Since 2013, uncompensated care costs have fallen by 1.7 percentage points more, and Medicaid revenue as a share of total revenue has risen by 2.9 percentage points more, in hospitals in expansion states than those in non-expansion states.  The Medicaid expansion also improved hospitals’ operating margins by 2.5 percentage points.[2]  The impact on rural hospitals’[3] operating margins was even stronger — a 4.0 percentage-point improvement, compared to 1.0 percentage point for urban hospitals.[4]

Medicaid Expansion Led to Large Coverage Gains in Rural Areas

Medicaid has long played a greater role in providing health coverage in rural areas than in urban areas, and the ACA has made Medicaid even more vital to rural America.  Nearly 1.7 million rural Americans have gained coverage through the Medicaid expansion.  In at least eight expansion states, more than one-third of expansion enrollees live in rural areas:  Alaska, Arkansas, Iowa, Kentucky, Montana, New Hampshire, New Mexico, and West Virginia.  Moreover, in expansion states overall, rural residents make up a larger share of expansion enrollees than of the states’ combined populations.

Like the rest of the country, rural America has enjoyed large gains in health coverage since the ACA’s major coverage expansions took effect in 2014.  The uninsured rate among rural non-elderly individuals plummeted by nearly one-third between 2013 and 2015, from 17 percent to 12 percent, the Kaiser Family Foundation estimates.[6]  Over the same period, the insured rate rose by 7.2 percentage points among rural individuals, compared to 6.3 percentage points for individuals in urban areas, the Urban Institute’s Health Reform Monitoring Survey found.[7]

States that expanded Medicaid have made especially large gains in rural health coverage.  The uninsured rate among rural, non-elderly individuals dropped much more in states that expanded Medicaid (from 16 percent in 2013 to 9 percent in 2015) than in non-expansion states (from 19 percent to 15 percent).

Coverage Gains Improve Rural Hospitals’ Finances

Health coverage gains in states that expanded Medicaid to low-income adults have substantially improved rural hospitals’ finances.  First, the Medicaid expansion significantly reduced rural hospitals’ uncompensated care costs — services for which hospitals are not reimbursed by an insurer or the patient.  Between 2013 and 2015, rural hospitals’ uncompensated care costs fell 43 percent in Medicaid expansion states, compared to 16 percent in non-expansion states.  Uncompensated care costs among rural hospitals declined as a share of total costs from 5.3 percent to 3.2 percent in expansion states, while only declining from 6.8 percent to 6.1 percent in non-expansion states (see Figure 1).  Uncompensated care costs have been shown to strain hospital budgets, reduce profit margins, and contribute to hospital closings.

The Medicaid expansion also significantly increased Medicaid revenue among rural hospitals.  Since 2013, Medicaid revenue as a share of total hospital revenue rose by 33 percent in rural hospitals in expansion states, compared to just 1.1 percent among rural hospitals in non-expansion states (see Figure 2).  That 33 percent increase equates to $2 million in higher annual revenue to the average rural hospital due to the Medicaid expansion.

The Medicaid expansion improved all hospitals’ operating margins (i.e., the difference between their revenue from providing services to patients and their total operating expenses) and excess margins (the difference between revenue from all sources, including donations, parking fees, vending machines, etc., and total operating expenses), but the effect was particularly pronounced in rural areas.[9]  (See Figure 3.)  Rural hospitals in expansion states increased their operating margins by 4.0 percentage points more, and their excess margins by 2.3 percentage points more, than rural hospitals in non-expansion states.  Gains were particularly pronounced among small rural hospitals with fewer than 100 beds in expansion states, where operating margins rose by 4.5 percent.  The Medicaid expansion led to smaller gains in operating and excess margins in urban areas, of 1.0 percentage points and 0.9 percentage points, respectively (see Table 1).

Earlier research showed that rural areas have enjoyed larger declines in the uninsured rate under the ACA than other areas; the more recent Urban data discussed here confirm the benefits of the ACA’s Medicaid expansion for rural residents and the hospitals that serve them — and contradict Administration claims that Medicaid serves mostly urban areas.[10]  Provisions in the House-passed American Health Care Act, as well as the Senate version just introduced,[11] would force the collapse of the Medicaid expansion, causing severe harm both to low-income individuals who’ve gained coverage through the expansion and to the hospitals that serve them in rural areas.

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