Impact of Medicare Sequester v. Medicaid expansion on providers

The Advisory Board has a new analysis of the impact on hospitals of the looming Medicare cuts that are a part of the Sequester. (h/t @ddiamond)

Although most of the sequestration cuts target defense and domestic discretionary spending, the deal includes a 2% cut to Medicare payments. The OMB’s analysis suggests that number is equivalent to about $5.8 billion in hospital payment reductions in FY 2013.

Most interestingly to me, they note a smaller average negative impact on hospital margins (1.6% reduction in 2021 margins) of the Sequester than a potential decision by a State to not undertake the now-optional Medicaid expansion (projected 2.5% reduction in 2021 margin, on avg). They note large cross-state differences in the potential impact of the Medicaid expansion (or not).

We estimate that failure to expand Medicaid coverage would result in an additional 2.5% reduction in Pleasantville’s 2021 margins. Note that this estimate will vary significantly from state to state, depending on current Medicaid payment rates and eligibility rules, and whether expansion occurs.

As previously noted here, the decision to expand Medicaid under the ACA or not will have a huge impact on North Carolina. The highlights of North Carolina’s Medicaid choice:

  • 488,867 more persons will be covered by Medicaid in 2014, 95% of whom would otherwise be uninsured
  • The state will have to pay $830 Million for these newly insured persons (the federal government will pay ~ $15 Billion) over the 6 year period in question
  • The costs of uncompensated medical care that are now borne by North Carolina will decrease by $1-$2 Billion over this same period, more than offsetting the additional State outlays for the Medicaid expansion

Interestingly, the impact of the Sequester on health care providers is beginning to get some news coverage in North Carolina, but there has been very little discussion of the Medicaid expansion choice along the same lines, in the media or in the campaigns for Governor and General Assembly. I assume this means that the Republicans know that we will do the expansion in N.C., and they have wisely not boxed themselves in. It is not as clear to me why none of the Dems running are talking about this issue.

a similar piece cross posted at freeforall

Author: Don Taylor

Don Taylor is an Associate Professor of Public Policy at Duke University, where his teaching and research focuses on health policy, with a focus on Medicare generally, and on hospice and palliative care, specifically. He increasingly works at the intersection of health policy and the federal budget. Past research topics have included health workforce and the economics of smoking. He began blogging in June 2009 and wrote columns on health reform for the Raleigh, (N.C.) News and Observer. He blogged at The Incidental Economist from March 2011 to March 2012. He is the author of a book, Balancing the Budget is a Progressive Priority that will be published by Springer in May 2012.