ACA marketplace coverage changes reduce hospital revenue, shift payer mix

Changes to reimbursement in government healthcare programs are starting to show up in hospital financials, based on Q1 reporting from the for-profit hospital sector.

Most notably, 2026 cutbacks in Affordable Care Act (ACA) marketplace coverage are manifesting in lower revenues, while hospitals are getting a taste of what’s to come next year in Medicaid coverage.

In a positive development, a grandfathering accommodation for Medicaid state-directed payments (SDPs) has provided a boost in states where CMS is approving submitted SDPs.

ACA marketplace coverage changes reduce hospital revenue

At HCA Healthcare, changes to ACA marketplace coverage led to a $150 million reduction in adjusted EBITDA for Q1, which was in keeping with the 190-hospital health system’s expectations and, in fact, came in on the conservative end of projections when extrapolated for the year. The figure includes the system’s best estimate of attrition from patients who initially were enrolled for 2026 but dropped coverage by failing to pay their monthly premium following expiration of enhanced subsidies.

Coverage restrictions manifested in a 15% year-over-year drop in marketplace equivalent admissions. Among that share, a group of 15% to 20% appears to have migrated to employer-sponsored insurance, with most of the rest becoming uninsured.

Of an estimated 16% increase in uninsured equivalent admissions, more than half stems from changes in marketplace coverage and “normal uninsured growth,” Mike Marks, CFO of HCA Healthcare, said during an earnings call.

HCA is seeing a shift in marketplace enrollment from silver to bronze plans, although Marks said the trend has not been substantial. But even some patients who have stayed in silver plans face higher out-of-pocket costs because of changes in benefit design among some 2026 plans, he added.

Nonetheless, “when we look at the rest of the year and the demand that we are seeing in the marketplace, we believe we will be able to run between 2% to 3% volume growth in the next three quarters over prior year,” Marks said. 

Medicaid policy changes begin to affect hospital conversions

Part of HCA’s estimated increase in uninsured admissions is from a year-over-year drop in Medicaid conversions, meaning patients who arrive at the hospital uninsured and then enroll in Medicaid with assistance of facility staff.

There has been “a slowdown of conversions to Medicaid from patients who were not willing to fill out applications,” Marks said.

HCA has not identified the exact reasons for the reluctance, but leaders have theories.

“We suspect that could be driven a bit by concerns around immigration [enforcement] and the like,” Marks said. “We are studying that.”

The issue may be a preview of what’s to come in the program. Later this year and in 2027, constraints on the availability of Medicaid coverage for certain categories of immigrants take effect, as does an expected paring of the rolls via implementation of a work requirement and increased frequency of eligibility checks for the expansion population.

“We’re just dealing with some dynamics we have not experienced before, and it is too early to suggest that it has peaked or not peaked,” HCA CEO Sam Hazen said.

Medicaid state-directed payments provide near-term revenue gains

Positives related to Medicaid revenue include CMS’s approval of SDP applications that were submitted prior to the cutoff date legislated in the 2025 reconciliation bill. Those SDPs can continue to be paid at a ceiling equal to the average commercial rate for hospitals through 2027. In contrast, non-grandfathered SDPs already are limited to the Medicare rate in expansion states and 110% of the Medicare rate in non-expansion states.

Marks said an SDP approval in Georgia and reinstatement of a program that had been frozen in Texas are projected to result in a net benefit of $200 million quarter over quarter, surpassing the system’s previously announced expectations for Q1 by $120 million.

At Community Health Systems (CHS), approval of the Georgia SDP is expected to bring in $30 million in revenue and $25 million in EBITDA gains over three quarters, leaders said.

HCA is encouraged about the possibility that CMS will approve Florida’s SDP application, although the process has taken longer than stakeholders may have anticipated.

“Based on our sense of things as we sit here today, we feel positive about the prospects of approval for the Florida program,” Marks said. “If approved, we believe it would result not only in additional revenues, but [revenues] that may be significant.”

Medicare Advantage denials and payer behavior pressuring margins

An aspect of reimbursement that remains challenging is the relationship with health plans, even at large systems with ample negotiating leverage.

“We continue to experience increased activity levels with our payers on denials and underpayments pretty broadly across payers and across products,” Marks said. “I would continue to call out Medicare Advantage as being the specific driver within the product mix.”

“Our recoveries — our work around dispute resolution and our work around appeals and getting these overturned — are such that we were able to mitigate and not see a lot of year-over-year impact to earnings,” Marks added. “But the denials and underpayments are still really high, and it is a key part for our industry to continue to work together on.”

HCA’s cooperative ventures with payers include digital integration to enhance data exchange. Administrative simplification and dispute management are other areas of collaboration.

At CHS, adjusted admissions fell by 0.5% in Q1, although the organization still expects to realize volume growth in the low single digits for the year. Volume challenges during the quarter were largely tied to patients with commercial or ACA marketplace insurance, said CEO Kevin Hammons.

“That leads us to believe a couple of things,” Hammons said. “One, it’s macroeconomic issues because those are the individuals with high deductibles, and [also] the more aggressive behavior by the managed care companies — at least anecdotally, they’ve turned the dial up on denying pre-authorizations in more cases. Oftentimes, those patients are not even getting to us because of that.”