STUDY: Navigant Health | Medicare Expansion: A Preliminary Analysis Of Hospital Financial Impacts

Though the 2020 Presidential election is still 20 months distant, it seems likely that the expansion of the 60 million-person Medicare program may be the pivot point of health policy debate. This paper takes a cautious first look at the impact of various Medicare expansion scenarios on the finances of a hypothetical medium sized multi-hospital system. The extent of Medicare expansion directly correlates to financial stress on hospitals and will place a premium on their having coherent revenue and expense control strategies.

The last major health insurance coverage expansion, the 2010 Affordable Care Act (ACA), used two main mechanisms to increase health coverage: Medicaid and commercial insurance. Both were fraught. Medicaid expansion was left to state option by the 2012 Supreme Court decision. The health exchange experiment proved both technically complex and fragile, and fell far short of enrollment expectations.

Medicare expansion, on the other hand, relies on a popular national program with a largely settled payment methodology. Unlike Medicaid, it does not rely upon the voluntary collaboration of 50 state governors and legislatures. Unlike private insurance, whose competitive structure and costs vary dramatically between communities, Medicare has a uniform and predictable cost profile.

Because Medicare pays providers considerably less than commercial insurance does, the “savings” from relying on Medicare rates reduces the cost of a coverage expansion. These lower payment rates, however, are a major concern of the hospital community, as they markedly reduce hospital revenues and disrupt the delicate balance of cross-subsidization between higher commercial rates and lower government rates.