Nearly 4 in 10 U.S. hospitals were operating at a loss before many federal policy changes expected to reduce hospital revenue and increase uncompensated care take full effect, according to a July 29 report from the Urban Institute and Robert Wood Johnson Foundation.
In 2023, 39% of hospitals reported negative operating margins, while an equal share posted margins of at least 5%. Rural hospitals and facilities serving large numbers of Medicaid patients were more likely to operate in the red.
That uneven starting point matters as hospitals prepare for changes involving Medicaid work requirements, state Medicaid financing, ACA marketplace coverage, immigration policy and rural health funding. Together, the shifts are expected to reduce insured patient volumes, increase bad debt and uncompensated care and intensify workforce pressures.
Hospitals with strong commercial payer mixes, larger system affiliations and healthier margins may be better positioned to absorb the pressure. Rural hospitals, safety-net facilities, children’s hospitals and academic medical centers face greater exposure.
The weakest hospitals face the biggest hit
The report identified rural and Medicaid-dependent hospitals as the facilities facing the greatest financial risk.
In 29 states, at least 40% of hospitals operated at a loss in 2023. In Kansas, Mississippi, Vermont and Washington, more than 60% were in the red.
Rural hospitals are particularly vulnerable because they already contend with lower patient volumes, high fixed costs and greater reliance on Medicare and Medicaid. About 41.2% of rural hospitals are operating at a loss, according to an analysis cited in the report.
A July 21 report from the Center for Healthcare Quality and Payment Reform estimates that 700 rural hospitals are at risk of closure, including 264 at immediate risk. Texas had the most at-risk rural hospitals, with 84, followed by Kansas with 58, Oklahoma with 45, Mississippi with 34 and Arkansas with 32.
Hospitals in Medicaid expansion states could see additional pressure from work requirements and twice-yearly eligibility redeterminations scheduled to begin in 2027, with some states moving sooner.
Nebraska became the first state to adopt the new federal work requirements May 1. Montana and Arkansas followed July 1, though Arkansas is running a soft launch and will not disenroll anyone for noncompliance until January 2027. Iowa plans to begin Dec. 1.
The Congressional Budget Office projects Medicaid expansion enrollment will fall by 5.7 million under the work requirements by 2034, with 5.3 million of those people becoming uninsured. More frequent eligibility reviews are projected to add another 700,000 uninsured people.
For hospitals, those coverage losses are expected to translate into lower revenue and more uncompensated care.
The Commonwealth Fund estimates Medicaid work requirements could reduce operating margins by an average of 13.3% for hospitals in Medicaid expansion states. Safety-net hospitals could see margins decline by as much as 29.6%, with some rural hospitals facing larger reductions.
Hospitals face pressure from both sides
Hospitals are not only confronting the prospect of treating more uninsured patients. They also face restrictions on Medicaid financing mechanisms that states use to support providers.
State-directed payments have become an important revenue source, particularly for safety-net and rural hospitals. CMS projects that 39 state programs will spend more than $140 billion through the arrangements in 2026.
The federal reconciliation law places new restrictions on state-directed payments and provider taxes, with reductions scheduled to phase in later this decade.
A pre-enactment analysis of 25 states found that capping state-directed payments at Medicare rates would reduce Medicaid hospital revenue by more than 20% in 19 states. Although the final law established a less restrictive cap for nonexpansion states, the Urban Institute said the reductions could still force hospitals to cut staffing and services.
Hospitals have used the payments to help support maternity care, neonatal intensive care, trauma programs and burn units. Those services could come under pressure as the funding declines, according to the report.
Children’s hospitals may be particularly exposed because more than one-third of their Medicaid funding comes from state-directed payments. Medicare-based caps also pose challenges because many pediatric services have no direct Medicare equivalent.
ACA coverage losses are already reaching hospitals
Changes to ACA marketplace coverage are also increasing the number of uninsured and underinsured patients.
Enhanced premium tax credits expired at the end of 2025, and marketplace premiums increased sharply for 2026. ACA enrollment fell by about 1.2 million between the 2025 and 2026 plan years, though the report said the full effect may not yet be reflected in early enrollment data.
The report cited projections that marketplace enrollment could fall by more than 9 million by 2028 because of the subsidy expiration and other eligibility changes.
Health systems are already reporting a near one-to-one shift from exchange coverage to uninsured care. King of Prussia, Pa.-based Universal Health Services CFO Steve Filton said “virtually everyone” who lost exchange coverage became an uninsured patient.
Nashville, Tenn.-based HCA Healthcare, Franklin, Tenn.-based Community Health Systems and Dallas based Tenet Healthcare have reported similar trends. The for-profit systems said the financial effect of the ACA subsidy expiration has exceeded some of their initial projections, as patients losing marketplace coverage continued seeking hospital care but generated little revenue.
“We expected some of these patients to shift to other forms of coverage, but this did not happen,” HCA CEO Sam Hazen said during the company’s second-quarter earnings call. “Instead, these patients migrated almost one for one to uninsured.”
The coverage losses may also be contributing to a slowdown in elective procedures, which typically generate some of hospitals’ strongest margins. HCA, Community Health Systems and Tenet reported softness in elective surgery volumes, particularly in orthopedic and cardiac care. HCA’s elective inpatient surgeries fell 6% year over year, with the company pointing to exchange coverage losses and broader affordability pressures as contributing factors.
CHS CEO Kevin Hammons said clinic visits and orthopedic MRIs were increasing, but “those visits and screenings are not translating into surgeries.” The system said commercially insured patients may be delaying procedures because of deductibles, copays and other household expenses. Tenet and UHS offered a different explanation, pointing to procedures shifting from hospitals to outpatient departments, ASCs and other lower-cost settings rather than disappearing entirely.
The coverage shift is benefiting some insurers even as it worsens hospitals’ payer mix.
Centene’s marketplace membership fell to about 3.5 million in the second quarter from roughly 5.9 million a year earlier, but the payer raised its full-year pretax marketplace margin outlook to 4.5% to 5% from 3%. Elevance Health and UnitedHealthcare also reported better-than-expected ACA performance, underscoring the widening divide between insurers that priced for enrollment losses and hospitals absorbing more self-pay patients.
Premier estimated hospitals will lose $68.6 billion in revenue during 2026 and 2027 because of rising uninsurance tied to Medicaid and marketplace changes. Nearly half of the loss is projected to come from reduced commercial revenue.
Hospitals in the 10 states that have not expanded Medicaid are expected to experience the greatest marketplace-related effects because more residents rely on exchange coverage. Florida, Georgia and Texas accounted for more than 43% of marketplace enrollment for the 2026 plan year, according to the Urban Institute and Robert Wood Johnson Foundation.
At the Becker's 11th Annual IT + Revenue Cycle Conference: The Future of AI & Digital Health, taking place September 14–17 in Chicago, healthcare executives and digital leaders from across the country will come together to explore how AI, interoperability, cybersecurity, and revenue cycle innovation are transforming care delivery, strengthening financial performance, and driving the next era of digital health. Apply for complimentary registration now.