Federal funds to cover the cost of hospital care for the uninsured could end up on the chopping block in states that haven’t expanded Medicaid eligibility to include low-income adults.
Several of the largest states that haven’t expanded Medicaid—including Texas, Florida, and Tennessee—operate uncompensated care pools in their Medicaid programs that direct funds to hospitals to help cover the cost of care for the uninsured.
The amounts are significant—over $3 billion each year in Texas, $1.5 billion in Florida, and $630 million in Tennessee, according to the State Health Access Data Assistance Center.
But those funds—or at least a portion of them—would be better spent by using them to expand access to Medicaid coverage rather than to inflate the bottom line for hospitals, critics say.
“The Biden administration is concerned that the pools have the effect of deadening the incentives to expand Medicaid in these intransigent states,” said
“Not all health-care costs are hospital costs, there’s also primary care, preventive care, prescription drugs, management of chronic diseases, the list goes on and on. What really matters is expanded coverage, and that’s what’s going to be driving the administration’s thinking on these pools.”
Safety Net Support
Defenders of the uncompensated care pools say they expand access to health care for the uninsured by propping up rural hospitals, mental health clinics, and nursing homes that provide those patients with vital health-care services.
The health-care safety net in Texas is “heavily dependent on our uncompensated care pool,” said John Hawkins, a spokesman for the Texas Hospital Association.
Texas would need an uncompensated care pool even if Medicaid eligibility expanded, Hawkins said. That’s because expansion would only cover around 1.2 million of the state’s 5 million uninsured people, leaving hospitals with a “significant burden of uncompensated care.”
The Texas pool entered the news in mid-April when the Biden administration pulled back a 10-year extension approved in the last days of the Trump administration.
The grounds of the pullback were procedural, the Department of Health and Human Services said in a letter to Texas officials: The Trump HHS had skipped the required notice-and-comment process in approving the extension.
But Texas Attorney General Ken Paxton (R) didn’t buy the procedural justification. The decision was “clearly intended to force our state into inefficiently expanding Medicaid,” he said.
Paxton announced a lawsuit challenging the decision May 14.
Rosenbaum said opponents of Medicaid expansion were right to fear a full notice-and-comment period for the extension proposal. “What they would end up with is a massive public record in opposition to the notion that it’s a good thing for states to get all of their expansion money in the form of a pool,” she said.
That public record could ultimately have provided the basis for a legal challenge to the proposal, Rosenbaum said.
Time to Negotiate
But the immediate impact of the decision will be far from dramatic, according to Judith Solomon, a senior fellow at the Center on Budget and Policy Priorities.
This is because the decision left the uncompensated care pool intact through September 2022, and imposed no changes in the amount of funds in the pool or how it operates, she said.
“Texas still has time to submit a new proposal for an extension, and to negotiate over the details,” she said.
Dramatically restructuring the pool would be no easy task, and wouldn’t happen overnight, said Anne Dunkelberg, director of the Health and Wellness Team at Every Texan, a policy advocacy group that supports Medicaid expansion in Texas.
“It’s not the usual M.O. of the HHS to pull the rug out from under complicated health-care financing arrangements all at once,” Dunkelberg said.
“But the Biden administration has been clear that it is a high priority to expand coverage in the non-expansion states, so I expect the topic of Medicaid expansion to be in the discussion when question of renewing these pools comes around.”
The Biden administration could very well look to revive the Obama HHS approach to uncompensated care pools, attempting to reduce their size to account for costs of those who would have been covered under Medicaid expansion, Solomon said.
That approach led to a reduction in the size of Florida’s uncompensated care pool, known as its low-income pool, from $1 billion to $608 million in 2016. The Trump administration reversed that cut in early 2017, increasing the pool to $1.5 billion.
But concrete proposals about the future of the pools—including how large they should be—will probably take a back seat for the time being while the administration considers how to increase coverage in non-expansion states, Solomon said.
A variety of proposals are on the table, including increasing the number of people eligible for Obamacare subsidies or creating a federally administered health insurance plan similar to Medicaid that would be pitched at the expansion population in the non-expansion states, she said.
Any of them could result in smaller uncompensated care pools in the non-expansion states, she said.
“If there is federal action that reduces the number of uninsured people, it’s hard to see how Texas and the other states make the case for the same amount of uncompensated care coverage,” Solomon said.
“The pools will probably still exist, because there still will be uncompensated care. But paying twice doesn’t seem like it should be on the table, so the funding in the pools would almost certainly drop.”