“Why is health care so expensive?” is the question I’ve been asked more than any other since joining the Indiana Hospital Association last year. It’s a critically important one, and while my answer usually begins with, “It’s complicated,” one thing is now certain:
Reducing Indiana’s health care costs became even more complicated as a result of the One Big Beautiful Bill Act (OBBBA), which is projected to cut nearly $13 billion from Indiana hospitals over the next decade.
The effects of this legislation will trickle down to all Hoosier patients — not just those on Medicaid — as hospitals are forced to cost-shift these significant losses in the coming years.
Impact on Hoosier patients
It’s undeniable that many of Indiana’s hospitals are financially strained. This year alone in our state, Harrison County Hospital, a rural hospital, closed its OB unit, and Columbus Regional Hospital announced a significant reduction in services. In addition, Logansport Memorial Hospital and Parkview Health entered into a partnership to ensure Hoosiers in Cass County continue to have access to care close to home.
Under the OBBBA, 180,000 individuals in Indiana are estimated to lose their Medicaid coverage. But Hoosiers without any insurance are still going to seek treatment — and their local hospital will be the only place they can turn to, most likely in the emergency room, which is the most expensive option for care. Hospitals will be forced to make difficult decisions to cover the care for everyone who enters their doors, regardless of their ability to pay, as health care costs are only going to increase in the future.
The ensuing ripple effect will likely bring about longer wait times for patients in emergency rooms and overall reduced access to care. Communities throughout the state will see possible hospital staffing impacts, reductions to clinical and community services, and in some instances, additional consolidation or closure of health care facilities altogether.
Projected losses for Indiana and its hospitals
According to the Urban Institute and Robert Wood Johnson Foundation, the expected Medicaid reductions from the OBBBA will cost Indiana an estimated $31 billion over the next decade, the seventh-highest total dollar impact across the nation. In other words, only six states will see higher cuts than Indiana.
Of that, Indiana hospitals will lose $12.7 billion with even lower Medicaid reimbursement than they receive today, which is just 57 cents on the dollar.
Throughout the state, 67% of care provided by hospitals is paid for by Medicare or Medicaid. Imagine running a business where two-thirds of your customers are purchasing your product at a price far below your actual costs. No business can sustain such losses for long. And your local hospital is no different.
Medicare and Medicaid make up an even higher percentage of care provided in rural communities, in which 72% of patients are covered by these programs, and largely why nearly one-third of Indiana’s rural hospitals are today operating at a loss.
Rural hospitals will fare no better than their urban and suburban counterparts, even after the inclusion of the new rural hospital stabilization funding in the OBBBA to offset the future Medicaid cuts. While details of how the funds will be allotted are still unknown, we appreciate Congress enacting this measure. Unfortunately, it won’t be enough to cover expected losses, and there is no additional assistance following the end of the OBBBA’s five-year period.
As dire as the situation is for Indiana, we would be in far worse shape had state policymakers not taken decisive action this past legislative session to supplement Indiana’s low Medicaid reimbursement through a new State Directed Payment Program (SDPP), which will provide hospitals some slightly enhanced Medicaid funding. IHA very much appreciates Gov. Mike Braun and the Indiana General Assembly for recognizing the need for this critical funding to help sustain Hoosier hospitals and protect access for patients.
However, under the OBBBA, this new SDPP reimbursement that hospitals will be depending on will be short-lived as it will begin to phase down over five years beginning in 2028, and Indiana’s Medicaid reimbursement for hospitals will drop even lower in 2032 than it is today.
Despite these significant challenges, Indiana hospitals remain committed to working with federal and state officials to find the best path forward to ensure continued access to affordable health care for all Hoosiers. It will take all of us – hospitals, policy leaders, payors, employers, and consumers – to come to the table to find workable solutions. The financial stability of our entire health system and the 6.8 million Hoosier lives it serves are depending on it.