Rural Health Policy Project

Connecting the Dots: Capping Medicaid, Closing Rural Hospitals, and Stranding Rural Children and Families

The Senate was designed by our founding fathers to protect less populated states. Few would dispute that over the decades, the Senate has faithfully executed that institutional mission, especially when it comes to health policy.

So it is completely mystifying that the Senate, according to all reports, is seriously considering capping federal Medicaid payments to states starting in 2020 and each year thereafter in perpetuity. A cap on Medicaid would almost certainly lead to a large federal disinvestment from health care in rural America, leaving rural communities without health care infrastructure and children and families without geographic access to care.

Allow me to connect the dots:

Dot #1: Medicaid is the largest insurer for children in rural America and one of the key insurers for non-elderly adults. This week Georgetown University CCF and the UNC Rural Health Research Program issued a report on the role of Medicaid in Small Towns and Rural America.

By analyzing the Census Bureau’s American Community Survey, we found that in 2014-2015, Medicaid was the source of health coverage for 45 percent of children and 16 percent of adults in small towns and rural areas nationally. In 15 states, half or more of the children living in small towns and rural areas were covered by Medicaid. In eight of those states—Alabama, Arkansas, Arizona, Mississippi, New Mexico, South Carolina, Tennessee, and West Virginia—the federal government pays at least two thirds of the cost of the Medicaid program.

Dot #2: Many rural hospitals are financially precarious. A Healthcare Management Partners study of the financial performance of 1,300 rural hospitals throughout the country found that, for a combination of reasons, rural hospitals have average margins of less than one-half percent. Because rural hospitals are so heavily reliant on Medicare and Medicaid revenues, the report concluded, “even relatively small reductions in federal payments will force the closure of large numbers of rural hospitals.”

Dot #3: The bill to “repeal and replace” the ACA that narrowly passed the House of Representatives on May 4 would cap federal Medicaid payments to states beginning in 2020 and every year thereafter, in perpetuity. The sole purpose of the cap is to reduce federal spending—not to reduce the number of uninsured or to promote innovation or to bend the health care cost curve. The CBO cost estimate of the House bill does not enable us to tell precisely how much of the $834 billion in federal Medicaid cuts over 10 years is attributable to the cap and how much is attributable to the phasing out of the ACA Medicaid expansion for adults. But there is little doubt that the cap is an important piece of the cuts, and, as my colleague Kelly Whitener has pointed out, the federal government will easily be able to “dial down” the cap for more cuts in the future.

Connecting the Dots: In order to keep their doors open and attract capital investment for future growth, rural hospitals need paying customers. The largest insurer for children in small towns and rural counties is Medicaid. The largest funder of Medicaid is the federal government. If the federal government starts to reduce its Medicaid payments to states, what are the implications for rural hospitals, their patients, and their communities?

Will the states pick up the financial slack by raising taxes or reallocating state dollars from other programs? Will they reduce eligibility or benefits or provider payment rates in order to stay under the caps? If state policymakers decide to reduce the number of children and families with Medicaid coverage, or reduce the amounts that Medicaid pays for the services those children and families receive, how will the economic development prospects of rural areas be affected?

The conclusion of the Healthcare Management Partners study is unambiguous: “Medicaid changes now under consideration would, if enacted, rapidly accelerate the rate of closings. Large areas of rural America will be affected. Rural hospital closures can be expected to result in economic and social dislocations that reach far beyond their impact on health care delivery…. Rural hospitals are often the single largest employer and have an indirect employment impact through commerce with local businesses.”

For fans of the institution, that the Senate would seriously consider capping federal Medicaid payments to rural states, many of which are highly dependent on federal payments to fund their Medicaid programs, is astonishing. That the Senate would do so without committee hearings is startling. Pushing this Medicaid cap through behind the façade of repealing and replacing the ACA is incomprehensible.




Andy Schneider is a Research Professor at the Georgetown University McCourt School of Public Policy.