Hospital operating margins in states implementing work requirements are projected to decline by anywhere from 0.4 percent in Alabama to 2.2 percent in Kentucky.


March 22—As many as 17 states could eventually have Medicaid work requirements, which may cut into the finances of hospitals in those states, according to a new analysis.

Commissioned by the Commonwealth Fund, which actively supports the Affordable Care Act (ACA), the report examined the increasing trend of states seeking waivers that establish work or other activity requirements as a prerequisite for obtaining Medicaid coverage. Specifically assessed was the potential financial impact on hospitals.

“Reductions in Medicaid coverage will have an impact on hospitals by reducing Medicaid payments and increasing uncompensated care costs, which will result in lower hospital operating margins,” the analysts wrote.

The report extrapolated early effects on Medicaid coverage totals in Arkansas, the first state to implement such requirements. The authors projected that nearly 50,000 (29 percent) of the state’s estimated 167,000 Medicaid enrollees targeted by the program may lose their coverage.

“We know paperwork requirements for people results in people losing coverage—and in churning,” said Cindy Mann, former director of Medicaid for the Centers for Medicare & Medicaid Services (CMS). Churning refers to enrollees moving in and out of eligibility.

Mann, who helped implement the ACA’s Medicaid expansion, said at a recent Washington, D.C., policy event that Medicaid programs can be designed either to provide a consistent source of coverage or to push people off public benefits and toward self-sufficiency.

“You cannot have it both ways,” Mann said.

The report projected that the reduced enrollment in Arkansas would reduce the average Medicaid revenues of 70 hospitals in the state by between 10 percent and 11 percent, or about $1 million.

Other States Impacted

Such impacts could be widespread. Six other states have received federal approval of some form of Medicaid work requirements, and another 10 have pending requests.

Hospital Medicaid revenue losses from implementation of work requirements, according to the projections, include:

  • 16.4 percent in Alabama
  • 11.9 percent in Arizona
  • 18.7 percent in Indiana
  • 21.5 percent in Kentucky
  • 19.9 percent in Michigan
  • 16.6 percent in Mississippi
  • 17.8 percent in New Hampshire
  • 13.1 percent in Ohio
  • 12.9 percent in Oklahoma
  • 15.7 percent in South Dakota
  • 19.5 percent in Tennessee
  • 14.6 percent in Wisconsin

Other Effects

Other impacts from large reductions in Medicaid enrollments include an increase in uncompensated-care costs, due to the need to treat more uninsured patients.

“Hospitals in states that expanded Medicaid will experience the largest increases in uncompensated care in both dollar amounts per hospital and in terms of percentage increases,” the report stated. “This is because there will be a larger proportion of Medicaid beneficiaries losing coverage in expansion states.”

Projected uncompensated-care cost increases per hospital ranged from 15.8 percent in Oklahoma to 133.7 percent in Kentucky.

The reduction in Medicaid revenues and increase in uncompensated-care costs will lead to reduced operating margins for hospitals in states that implement work requirements, according to the report.

As a result, hospital operating margins in states implementing work requirements are projected to decline by anywhere between 0.4 percent in Alabama and 2.2 percent in Kentucky.

“The improvements in hospital finances [resulting from the ACA] may be jeopardized if the Medicaid coverage losses experienced by Arkansas are seen in other states,” the authors wrote. “This adverse financial impact will not only affect the hospitals and Medicaid patients but their entire surrounding communities.”

Outlook for Work Requirements

Activists have filed lawsuits against three states’ work requirements, and decisions are expected on challenges to the Arkansas and Kentucky programs by the end of March.

Unless the courts decisively strike down the programs, “We will have to figure out some way to make it work,” said Dean Rosen, JD, a partner at Mehlman Castagnetti Rosen & Thomas.

The efforts to implement work or education requirements for able-bodied Medicaid enrollees echo similar actions to reform welfare in the 1990s, he said.

However, he noted that such imposition of requirements will wax and wane based on the political leanings of states’ representatives.

“Nothing we do in health care anymore is permanent,” Rosen said.


Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare

Publication Date: Monday, March 25, 2019