Health Care

Congress targets uncompensated care pools in non-expansion states

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Congressional Democrats are renewing a fight with states like Texas and Florida that haven’t expanded Medicaid to low-income adults, targeting one of their key sources of funding for hospitals: uncompensated care pools.

President Joe Biden’s $1.75 trillion domestic policy package, which the House could vote on as soon as this week, would limit federal payments for uncompensated care in states that haven’t expanded Medicaid.

Democrats and experts argue that state leaders wanting to help hospitals with high levels of uncompensated care should expand Medicaid to cover more low-income adults like 38 other states have already done.

“It’s not a good way to spend federal dollars to just let people be uninsured and then pay for potentially preventable hospital services,” said Eliot Fishman, senior director of health policy at Families USA, a consumer advocacy group in Washington.

“There’s a very good chance that that hospitalization is because they don’t have health insurance,” said Fishman, who worked on Medicaid waiver issues for the Centers for Medicare and Medicaid Services from 2013 to 2017.

The pools, which help select states defray the costs of uncompensated care and low Medicaid reimbursements, have existed in some form for several years but became tangled up in the politics of Medicaid expansion after the passage of the Affordable Care Act in 2010.

Twelve states have yet to expand Medicaid but only four have uncompensated care pools: Texas, Florida, Tennessee and Kansas.

The provision in the domestic policy package—dubbed the “Build Back Better Act” by the administration —would limit payments to states for uncompensated care pools for uninsured people making between 138% and 100% of the federal poverty level people who would qualify for Medicaid if their states expanded it.

The proposed legislation doesn’t prevent states from using the pools to make payments for Medicaid shortfalls or other uncompensated care for other uninsured individuals.

The American Hospital Association and the Federation of American Hospitals want the provisions on uncompensated care pools removed from the bill, arguing it would hurt safety net hospitals in those four non-expansion states. They are also urging Congress to take out a provision cutting Disproportionate Share Hospital payments by 12.5% in non-expansion states.

The cuts would be partially offset—at least temporarily—by added ACA subsidies for the 2.2 million people in the coverage gap in non-expansion states. But those subsidies would need to be reauthorized by Congress after four years, and there’s no certainty that will happen or that Democrats will have control of Congress at that point. Meanwhile, Congressional Republicans have showed no interest in closing the expansion gap or shoring up the ACA.

Still, the pools were never meant to be a permanent solution to uncompensated care, especially when states receiving that funding are not expanding Medicaid, said Joan Alker, executive director and co-founder of the Center for Children and Families at Georgetown University.

States must get approval for the pools from CMS under1115 Medicaid waivers, and the federal government matches funding put up by states. The waivers are intended to test innovative ways of delivering healthcare through Medicaid.

“This is by no means a guaranteed path to funding for any state,” she said.

“If the states are worried about uncompensated care its providers are experiencing because these states have high uninsured rates, then the smart thing to do would be to expand Medicaid.”

Florida and Texas, which have the highest uninsured rates in the country, are the largest beneficiaries of the funding and have stalwartly refused to expand Medicaid, even as Congress offers more financial incentives for them to do so.

It’s not yet clear how much of a decline in payments the proposal would amount to for those four non-expansion states states—those calculations would be left up to the Centers for Medicare and Medicaid Services.

Texas is currently approved to make up to $4 billion a year in uncompensated care pool payments until Sept. 30 of next year, while Florida can make up to $1.5 billion a year in payments until June 30 of next year, according to the State Health Access Data Assistance Center.

Tennessee is authorized to spent $627 million annually, while Kansas can spend $51 million per year.

Three states that have expanded Medicaid, including California, also have smaller uncompensated care pools that would be unaffected by the proposal.

Overall, uncompensated care pool payments made up about 4% of Medicaid payments to hospitals in fiscal year 2019, according to The Medicaid and CHIP Payment and Access Commission.

But the cuts would ultimately mean hospitals get less help with uncompensated care costs if their states continue to resist Medicaid expansion or if the subsidies for people in the coverage gap are allowed to expire.

Some Congressional Democrats from Texas and other non-expansion states said they’re worried about the transition period between getting people in the coverage signed up for ACA plans and the changes to the pools. People in the coverage gap could get ACA subsidies to buy plans on the marketplaces beginning in 2022. The provisions on uncompensated care pools take effect in 2023.

“The trouble is that it will take months, even years, to cover high percentages of the uninsured in non-expansion states with this temporary coverage solution,” Rep. Jim Cooper (D-Tenn.) and 19 other lawmakers wrote in a letter to House and Senate Democratic leaders earlier this month.

“It’s a question of sign-up rates and timing. Once the hospitals get the better reimbursement offered by private insurance rates, they will undoubtedly be more financial stable, but the transition could be disastrous,” the letter states.

Roberto Haddad, vice president for government affairs and policy for the Doctors Hospital at Renaissance Health System in Edinburg, Texas, said he thinks the provision will make states less likely to expand Medicaid.

“States have had every opportunity, every incentive to expand Medicaid, and while it absolutely makes sense on a policy level and on an economic level, and most importantly on a humanitarian level, they haven’t because the politics are dug in,” he said.

“And I think the provisions of this bill will just make that dynamic worse.”

Advocates and hospitals had pushed for Congress to pass permanent solution to the coverage gap issue but it was ultimately trimmed from the domestic policy package due to cost concerns posed by moderate Democrats in the Senate.

Uncompensated care pools have been tied up in the politics of Medicaid expansion since 2015, when the Obama administration proposed reducing payments to Florida by 75% after accounting for how many people would have insurance if the state had expanded Medicaid.

In the final days of the Trump administration, HHS approved renewals of uncompensated care waivers for Florida, Texas and Tennessee for ten years. Texas and Florida are set to receive boosts in funding under the renewals.

The Biden administration took issue with the process the Trump administration used to approve the Texas waiver—with no notice and comment period—and is renegotiating its terms with the state, but it has not commented specifically on the policy of allowing pool funding to be used for the coverage gap population.


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