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Medicaid Expansion Will Line Hospitals’ Pockets

October 7, 2014

In the debate over expanding Medicaid to cover more low-income Arizonans, we are being told that the costs for uncompensated care at Arizona hospitals are soaring, making Medicaid expansion necessary to prevent financial disaster from befalling our hospitals. A closer look reveals that this claim is simply untrue.

Uncompensated care is made up of two things: charity care and bad debt.

Charity care is free or discounted care hospitals provide to people below a certain income level, usually 150-200 percent of the federal poverty level. The nonprofit Banner Health hospital network netted a very healthy $296 million in 2011, while charity care composed a mere 2.8 percent of their expenses in 2011. At Yavapai Regional, another non-profit hospital which increased its net revenues by over $17 million between 2010 and 2011, charity care represented only .5 percent of total expenses. Charity care is far from breaking the bank.

Bad debt, by far the largest portion of uncompensated care, is when a patient does not qualify for charity care because they are above the income threshold but they fail to pay their bill. It encompasses uninsured patients but also insured patients who fail to pay their co-pays, deductibles, or co-insurance. Bad debt will be unaffected by Medicaid expansion because the people in this category will still not be eligible for Medicaid coverage because they will be above the income limit. Furthermore, hospitals report bad debt at their “charge rates” rather than their actual cost, which effectively hides millions, or in the case of giants like Banner hundreds of millions, in additional net profit by making their uncompensated care costs appear much higher than they actually are.

In inflating uncompensated care numbers, hospitals point to “unreimbursed Medicaid,” the difference between the cost of providing care to Medicaid patients and the reimbursement rate from the government, which hospitals constantly say is too low. This number will only increase under the proposed Medicaid expansion because hospitals will claim additional unreimbursed Medicaid for each Medicaid patient they treat. As the number of people on the Medicaid rolls grows, so will the claim of unreimbursed Medicaid. Don’t be surprised if this leads to a plea from the industry for an increase in reimbursement rates, an increase that taxpayers would have to cover.

Experience shows that even if Arizona did expand Medicaid, hospitals would still report increasing uncompensated care numbers. In 2009, the Arizona Hospital and Health Care Association commissioned a report which found that during the first eight years of the Prop. 204 Medicaid expansion, uncompensated care increased by an average of 9 percent per year. We must ask hospitals why they expect a different result this time around.

In truth, hospital profits are more than healthy. This is not an industry that needs more taxpayer dollars. The legislature should be wary of the story hospitals are selling.

Learn more:

Top 10 Reasons to Reject the Medicaid Expansion

Tax Filings for Nonprofits



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