Closing Medicaid coverage gap could widen hospital margins, report says

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If the Build Back Better Act goes into effect, hospital margins in the 12 states that have not expanded their Medicaid programs will increase by an estimated $11.9 billion, according to a Nov. 4 report by USC-Brookings Schaeffer Initiative for Health Policy.

Through the Affordable Care Act, states can extend their Medicaid programs to adults under age 65 with incomes below 138 percent of the federal poverty level, but 12 states have not done so.

In those 12 states, people with incomes below 138 percent of the federal poverty level are mostly ineligible for subsidized coverage. But the current draft of Democrats' Build Back Better Act wants to fill the coverage gap.

Here are five things to know:

1. The current draft for the Build Back Better Act would fill the Medicaid coverage gap by making people below the poverty line in those 12 states eligible for ACA marketplace coverage. More than that, it would change marketplace coverage by eliminating all premiums and cost-sharing for people with incomes below 138 percent of the federal poverty line. This would add services that are covered by Medicaid but not the marketplace.

2. By making these changes, the report estimates that hospital margins in the 12 states would rise by $11.9 billion if the Build Back Better Act went into effect in 2023. The reason for this improvement is because hospitals would be paid for services they're delivering anyway but aren't currently being paid for. Additionally, more patients would be seeking care because of increased coverage, which would raise profits.

3. Hospitals in these states also would have smaller Medicare disproportionate share hospital payments. This is because the payments use a formula that looks at the national uninsured rate and the distribution of uncompensated care across hospitals. Both of these items would change.

4. If policymakers instead chose a federal Medicaid plan, these hospitals would receive smaller increases in margins at $3.6 billion. A federal Medicaid plan would most likely pay hospitals less than marketplace plans, according to the report, leading to hospitals receiving less revenue and less patient volume for uncompensated care.

5. The draft Build Back Better Act could help patients by allowing hospitals to provide care even if they have fewer resources. However, it could also allow hospitals to accept higher profits and increase costs, therefore not helping patients.

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