Health Care

Kaitlyn Finley | April 12, 2019

Medicaid expansion fails to lower hospital prices

Kaitlyn Finley

A recent state report out of Colorado finds Medicaid expansion failed to cause hospitals to lower prices and generate savings for those with private insurance.

Many expansion proponents have claimed expanding Medicaid would increase hospitals’ reimbursement payments and help their bottom line. In return, hospitals could lower prices and thus insurance premiums may decrease. Hospitals would no longer shift uncompensated care costs to those with private insurance.

Unfortunately, this master plan did not pan out. Although expanding Medicaid in Colorado (funded through a costly shell game of provider taxes) did reduce hospitals’ uncompensated care costs, hospitals did not use their increased revenues to lower costs.

The report concludes, “Hospital margins for all payer types (commercial, Medicaid, Medicare, other) increased by more than 250 percent per adjusted discharge…. Hospitals could have passed on significant savings to commercial consumers had they matched national cost benchmarks using Medicare Costs Report [,] suggesting as much as 8.3 percent in cost savings or $7.9 billion from 2009-2017.”

Instead of containing costs and lowering prices, Colorado hospitals used their profits to buy out more physician-owned practices, consolidate hospitals into larger systems, and fund new construction projects. It’s interesting to note that these new expansion projects were focused in areas that did not need more medical facilities, according to the report. “New construction seems to correspond to the regions that do not need new facilities nor new hospitals, with new hospital construction concentrated largely in the higher income areas of Colorado, such as Longmont/Boulder.”

Months before this state report was released, many nonprofit Colorado hospital corporations were already facing public scrutiny for aggressively building more hospitals. Last October the Denver Post reported, “Colorado hospitals hiked prices by 76 percent over a seven-year stretch as they pushed their profits to among the largest in the nation and built more aggressively than hospitals in all but one other state…. [H]ospitals doubled their administrative costs from 2009 to 2016 and contributed to residents in the state’s mountainous west region paying the highest insurance rates in the nation.”

Colorado is not the first state where the cost of health care has continued to climb after it expanded Medicaid. A report last year from the Goldwater Institute found that after Arizona expanded Medicaid, hospitals there continued to raise prices.

Hospitals’ list prices, or “charges,” for services increased more for the insured than the uninsured. Total charges for all payment groups (public and private) increased… [Medicaid expansion] allowed urban hospitals to increase charges on private payers dramatically, and it created disproportionate financial benefits for urban hospitals at the expense of their rural counterparts.

Oklahoma does not have to expand Medicaid to hundreds of thousands of able-bodied, working-age adults and further enrich urban hospitals in order to aid rural health care. As we have seen, there is no guarantee that hospitals in Oklahoma City or Tulsa will pass any savings along to Oklahomans or invest in rural areas. In fact, Medicaid expansion could lead to further consolidation to the detriment of rural communities.

Permanently expanding this entitlement program (and raising taxes) in order to secure a few financial crumbs for smaller hospitals is poor public policy that yields a terrible return on investment. There are better alternatives to help rural health care and also lower costs for all Oklahomans that lawmakers can consider.

Oklahomans should note the experiences of Colorado and Arizona and reject Medicaid expansion—because who wants a higher ER bill and more taxes?

Kaitlyn Finley Policy Research Fellow

Kaitlyn Finley

Policy Research Fellow

Kaitlyn Finley currently serves as a policy research fellow for OCPA with a focus on healthcare and welfare policy. Kaitlyn graduated from the University of Science and Arts of Oklahoma in 2018 with a Bachelor of Arts in Political Science. Previously, she served as a summer intern at OCPA and spent time in Washington D.C. interning for the Heritage Foundation and the U.S. Senate Committee on Environment and Public Works.

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