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Gaining a potential financial windfall from the Affordable Care Act

Kimberly James explores the potential benefits of the Affordable Care Act for healthcare businesses and states

Since the Affordable Care Act (ACA) became effective, 26 states have expanded Medicaid coverage due in large part to those states not having to charge state taxpayers for the expanded program until 2020. In 2020, states will then be responsible for 10 percent of the expanded Medicaid costs. Data regarding the first enrollment period under the ACA shows that the 26 states with expanded Medicaid have not only increased insurance coverage but have also flourished economically. Apparently, the additional funding related to Medicaid expansion has been seeds for new growth in the health sectors and has also provided new jobs.

Last month, the Urban Institute released a review of state-level fiscal studies in 16 states. In each analysis, expansion of Medicaid was found to help state budgets. Without exception, state savings and new state revenue were found to exceed state Medicaid expansion costs. Despite the almost guaranteed economic upshot associated with Medicaid expansion, 24 states have rejected Medicaid expansion. In its review of one such state, Texas, the Urban Institute estimated that the ten-year state price tag to expand Medicaid in Texas from 2013 to 2022 will be $5.7 billion, but the state would get $65.6 billion in federal funds over that period. Logically, Texas would seem to be a prime candidate for expanding Medicaid as Texas has the highest percent of uninsured residents. One in four Texans — 6.4 million — are uninsured. Nonetheless, Texas has rejected Medicaid expansion.

If the 24 states that have rejected expanding Medicaid, presumably for political reasons, under the ACA continue to do so for the next eight years, those states will pay nearly $152 billion to subsidize the program in other states — while receiving nothing in return. The tax dollars collected by those states from 2013 through 2022 would pay 37 percent of the cost associated with expanded Medicaid in the 26 remaining states and Washington, D.C., over that same period. The majority of the money, nearly $88 billion, would come from taxpayers in just five non-expansion states: Texas, Florida, North Carolina, Georgia and Virginia.

There has movement by some Republican governors to reexamine Medicaid expansion in their states. Pennsylvania Gov. Tom Corbett has recently negotiated a deal with the Obama administration that will cover Medicaid expansion to another half-million low-income Americans in Pennsylvania. The expansion by Pennsylvania will take effect in 2015. The governor of Tennessee, Bill Haslam, echoed the same sentiments as Governor Corbett and will likely follow Corbett’s lead by negotiating the same or similar deal. One of the most strident opponents of President Obama and the ACA, Gov. Mike Pence of Indiana, is also moving toward Medicaid expansion along with Wyoming and Utah.

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In addition to helping millions of Americans obtain healthcare coverage, large hospitals are beginning to realize an expansion in profits. A report conducted by major for-profit health care systems found that hospitals in states that expanded Medicaid eligibility under the ACA are seeing far fewer uninsured patients, a large rise in paying patients and increased revenue as a consequence — which stands in stark contrast to statistics obtained for hospitals in non-expansion states. Price Waterhouse Coopers Health Research Institute.

Specifically, the report revealed, “There was about a 47 percent decrease in the rate of admissions of uninsured or self-paying patients at the hospitals in expansion states in the first half of 2014. Yet, hospitals in non-expansion states either saw a slight reduction in such admissions or no decreases at all. Hospitals in expansion states also saw double-digit increases in Medicaid admissions, while Medicaid admissions at hospitals in non-expansion states were modest, at most.” The report also found, “For-profit health systems, operating more than 500 hospitals in the United States, report far better financial returns through the first half of the year than expected, due in large part to expanded Medicaid. In states that have expanded Medicaid, an influx of newly insured patients has helped reverse long-running hospital trends such as declining admissions and a rise in uncompensated care."

Take-aways

The economic impact to states that fully avail themselves of the benefits of the ACA is positive. It seems that millions of Americans are enjoying beneficial consequences of the law. Accordingly, it is likely that hospitals and other health care organizations will continue to urge state lawmakers to expand Medicaid in those states that have resisted expansion thus far.

Contributing Author

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Kimberly James

Kimberly James is Of Counsel in the Houston office of McGlinchey Stafford . Kim handles labor and employment law, as well as other general business...

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