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). 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.

About Don Taylor
Professor of Public Policy at Duke University (with appointments in Business, Nursing, Community and Family Medicine, and the Duke Clinical Research Institute). I am one of the founding faculty of the Margolis Center for Health Policy, and currently serve as Chair of Duke's University Priorities Committee (UPC). My research focuses on improving care for persons who are dying, and I am co-PI of a CMMI award in Community Based Palliative Care. I teach both undergrads and grad students at Duke. On twitter @donaldhtaylorjr

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