It probably sounded like a good trade-off at the time: Hospitals would give up $155 billion in Medicare and other government payments to help provide more money for a Medicaid coverage expansion that begins in January.
But subsequent events have put the deal in doubt in Indiana. Hospitals could be left with nothing to show for the payment reductions, which began with the Affordable Care Act in 2010, if the federal government doesn’t accept Gov. Mike Pence’s idea for administering the Medicaid coverage expansion.
The hospital losses are not chump change: Deaconess Health System reports losing more than $3.8 million since 2010. St. Mary's Health System reported the information wasn’t available. The payment reductions will escalate next year and continue through 2020.
Hospitals statewide also expect to lose more than $100 million annually when Medicaid Disproportionate Share Hospital funding cuts included in the Affordable Care Act fully phase in later this decade. The state’s DSH allotments — more than $214 million annually — are intended to cover the costs of care to low-income patients that are not paid by Medicare, Medicaid, the Children's Health Insurance Program or other health insurance.
Meanwhile, Indiana hospitals have received no commensurate offsetting benefit of new Medicaid and health insurance exchange patients — and they won’t until this January at the earliest, assuming the federal government says yes to Pence. If the question remains unresolved, there will be no Medicaid expansion in Indiana — and hospitals in the state will continue to lose government payments without offsetting Medicaid expansion funds — until it is resolved.
This wasn’t what Congress envisioned when it passed the Affordable Care Act in 2010.
Although the U.S. Supreme Court upheld the health care law in 2012, it also ruled that Congress exceeded its constitutional authority by trying to pressure states into participating in the Medicaid coverage expansion with threats to eliminate other Medicaid funding. That gave states the right to make their own decisions about participating in the expansion.
Pence, a Republican, is leery of expanding Medicaid coverage through the traditional, fully government-funded program. He is asking the federal government for a waiver to expand the state-developed Healthy Indiana Plan as the vehicle to cover the 406,000-plus uninsured but newly eligible Hoosiers who could qualify — and use federal Medicaid funding to pay for it.
Unlike traditional Medicaid, the Healthy Indiana Plan requires participants to contribute up to 5 percent of their personal income to a health savings account, which is also partially funded by the state. Only after that savings account is exhausted does a more traditional health insurance program kick in.
Not surprisingly, getting a Medicaid coverage expansion is a major legislative priority for the Indiana Hospital Association. The Indianapolis-based nonprofit professional trade association has been lobbying hard for an expansion either through traditional Medicaid or what Pence is pursuing.
The hospital association commissioned a study estimating that a Medicaid expansion would create more than 30,000 jobs through 2020 and draw nearly $10.5 billion in total federal funding to the state. The state’s share of the cost would be $503 million through 2020.
The Medicaid coverage expansion would certainly bring short-term benefits to hospitals.
It would mean a higher federal matching rate, for one thing. The proportion of newly eligible individuals’ coverage costs paid by the federal government would be 100 percent in the first three years after the expansion. Federal financial support would decrease as the rate declined to 90 percent in 2020, with the state paying 10 percent.
With the new insured patients, hospitals also presumably would have less bad debt and would provide less charity care.
But there are skeptics.
U.S. Rep. Larry Bucshon acknowledges Indiana hospitals would get generous federal funding with a traditional Medicaid expansion, but he is not so sure the numbers add up to their advantage in the end. Bucshon, a former heart surgeon, says states should have the flexibility to design programs like the Healthy Indiana Plan to help manage their Medicaid dollars.
The Republican congressman has one major objection — one that speaks to his long-standing opposition to Democratic President Barack Obama and the Affordable Care Act, which Bucshon has voted several times to repeal. He points to the planned reduction of the federal matching rate to 90 percent in 2020, calling it a precursor of a larger disengagement to come.
“The concern is that over time, because of budgetary reasons, the federal government would retract its support for the (traditional) Medicaid expansion and the state is going to be left holding the bag for the extra money,” Bucshon said. “In my opinion, they would.”
A member of the House GOP’s Doctors Caucus, Bucshon cited studies suggesting that traditional Medicaid patients overuse hospital emergency rooms — a particularly expensive use of medical care — because the visits are covered without co-pay under the program. But it’s not hard to find other studies suggesting the majority of Medicaid visits to the emergency room are for urgent or serious issues.
The prospects of the Obama administration saying no to Pence’s Healthy Indiana Plan idea are at least even.
Pence’s administration submitted an application to the U.S. Department of Health and Human Services requesting the authority to dramatically increase the size of the Healthy Indiana Plan, which currently covers nearly 40,000 Hoosiers and is set to expire at the end of the year. However, federal officials said no when Daniels asked the same question before.
“I would blame the federal government’s one-size-fits-all, Washington, D.C., plan (if there is no agreement),” Bucshon said. “Hospitals would be in exactly the same place they are today.”