The ACA begins to lower costs for all, in some states more than others

Personal Finance
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By Gary Votour

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The Affordable Care Act is beginning to have its predicted impact on health care costs across the country. Many hospitals are finding reduced demand for charity care—that is, care provided for patients who cannot pay for hospitals services due to low income or a lack of insurance. This is happening only in states that expanded their Medicaid programs using the incentives and funding provided by the health law. Still, this change is beginning to have a significant effect on the cost of health care for everyone.

In the United States, we spend more on health care than any other country in the world, about 17% of our gross domestic product. Yet by most standards of health care quality, we do not rank the highest. This is mainly due to our approach to health insurance, where an unregulated market of insurers has been able to make huge profits that bring few benefits to care quality. Another major reason is that hospitals are required to provide care for everyone, whether or not they have insurance. Hospitals do not simply provide charity care at their own expense; they instead shift the burden to other patients by raising the cost of their services. This increases the cost of health care for everyone through higher premiums for those with insurance and higher costs for those who pay out of pocket. The health law is changing both of these features in an attempt to lower costs and improve access for everyone.

Two of the key provisions in the law are limitations on the amount of profit health insurers can make from selling insurance and an expansion of health care services for those with low income through increasing the income limits for state-run Medicaid programs. The Affordable Care Act originally sought to require all states to expand Medicaid with federal funding, but in 2012 the U.S. Supreme Court ruled that each state had the right to decide for itself whether to expand its Medicaid programs. In a show of opposition to the law, 24 states have decided not to expand.

The Kaiser Family Foundation reports that 7.6 million Americans who could be eligible for Medicaid live in states that have decided not to expand Medicaid. In these states, public attention to the cost-saving facts of Medicaid expansion are making a difference in how likely they are to implement expansion in the future. In many of these states, notably Georgia, Missouri and both North and South Carolina, protest movements have arisen to demand a legislative reversal that would allow Medicaid to be expanded with federal funds to cover health insurance for those uninsured millions. Medicaid expansion in these states will not only lower the number of uninsured but also reduce health care costs for everyone. The more people who are eligible within a state, the greater the cost-saving effect will be if the state decides to expand Medicaid.

A new study by the Colorado Hospital Association examined charity care provided by 456 hospitals in 30 states during the first half of 2014. Half of the states in the study had expanded Medicaid programs and half had not. In the expansion states, the study found a 30% decrease in hospital spending for charity cases. Many of those hospitals had provided on-site staff to assist charity care recipients in enrolling in Medicaid programs. As these states continue to sign up people for Medicaid, it is expected that the cost of charity care will continue to decrease. The study also found a significant decrease in self-paying patients who had no insurance, as many of these patients became eligible for Medicaid under the expanded programs.

In governors of Ohio and Kentucky each found ways to use legal quirks to expand Medicaid, despite legislative attempts to block it. Ohio’s John Kasich, a Republican, used an administrative board that normally oversees state contracting to approve the expansion. Kentucky’s Steve Beshear, a Democrat, was able to order the expansion because the eligibility rules are set in state regulations that can be changed by executive order. Virginia Gov. Terry McAuliffe, another Democrat, is exploring the option to bypass the legislature by issuing an executive order that would enroll 400,000 Virginians in Medicaid.

Hospitals are also complaining in the states that have not expanded Medicaid. Two hospitals in the Jacksonville, Alabama, area have filed complaints with the state that the decision not to expand Medicaid has cost them $1.2 million in revenue this year already. As more hospitals realize that the higher costs in these states are making them less cost-effective than hospitals in expansion states, the pressure will continue to increase.

In addition to expanding Medicaid and limiting insurance companies’ profits, another important factor is that the Affordable Care Act mandates everyone must have health insurance. Large amounts of federal subsidies are helping those with limited income to afford qualifying insurance, but the Medicaid expansions decrease the need for these subsidies. In fact, the expansion states are showing huge decreases in the overall numbers of uninsured, most notably in Kentucky (down by 50%), Minnesota (down by 40%) and New Jersey (down by 38%). Increasing the number of insured people helps the insurance companies remain profitable. In insurance, spreading risk across a larger, healthier population returns greater profits than does overcharging a smaller, less-healthy population.

The opposition in states that are not expanding Medicaid will continue to be costly to those living there. Insurers will be able to charge higher premiums, and hospitals will continue to shift the costs of charity care to its insured and self-paying patients. Most importantly, people with low incomes will not be able to enjoy the benefits that insurance provides to improve health, such as preventative medicine and increased lifestyle awareness, that hospitals do not provide as charity care. As the old saying goes, an ounce of prevention is worth a pound of cure.