Medicaid expansion likely to affect the delivery of surgical care

On March 23, 2010, President Barack Obama signed the Patient Protection and Affordable Care Act (ACA), the most comprehensive health care reform legislation enacted in the U.S. since the introduction of Medicare and Medicaid in 1965. The ACA aims to provide affordable health insurance coverage to an additional 32 million Americans. Among its most controversial components is the authorization of the expansion of state Medicaid programs to a maximum of 16 million individuals earning less than 138 percent of the federal poverty level (FPL), as detailed in Table 1.1–3 This article provides an overview of the Medicaid program and proposed expansion, considers the impact of expansion on patient care, and clarifies the factors driving state implementation decisions.

Table 1. 2013 FPLs for Contiguous 48 states and District of Columbia

Household size 100% 133% 138%
1 $11,490 $15,282 $15,856
2 $15,510 $20,628 $21,404
3 $19,530 $25,975 $26,951
4 $23,550 $31,322 $32,499
5 $27,570 $36,668 $38,047
For each additional person, add $4,020 $5,347 $5,548

Medicaid funding and payment

Medicaid was created with Medicare when President Lyndon B. Johnson signed into law the Social Security Amendments of 1965. In general, states administer Medicaid to provide coverage for certain low-income populations. Table 2 lists guidelines for Medicaid eligibility prior to implementation of the ACA.

Table 2. Pre-ACA Medicaid Eligibility

Required by federal law Various categories of individuals below the FPL:

  • Children
  • Pregnant women
  • Disabled
  • Elderly in need of nursing home care
  • Low-income adults
  • Parents of low-income children
  • Seniors
  • Disabled individuals who earn above the Supplemental Security Income (SSI) level but are below the FPL
Poverty is one of several eligibility requirements.
*States have flexibility in determining eligibility criteria for optional groups; threshold poverty level for coverage of low-income parents runs as low as 17% of FPL.

Although Medicaid is administered by the states, programs receive funding from both the federal and state governments. The federal government’s contribution is known as the federal medical assistance percentage (FMAP) and covers at least 50 percent of state Medicaid costs.1 The percentage is determined by a formula that favors low-income states; Mississippi claimed the highest FMAP (73.4 percent) in fiscal year (FY) 2013.1,4 The federal government offsets low Medicaid reimbursement rates by providing disproportionate share hospital (DSH) payments to states. States distribute these funds at their discretion to compensate hospitals that provide care to uninsured individuals and to Medicaid recipients.2

Historically, Medicaid has provided lower reimbursement rates than Medicare and private insurers. According to a Kaiser Foundation study, average Medicaid reimbursement in 2012 was only 66 percent of the amount that Medicare paid.2,5 Medicaid-to-Medicare ratios vary significantly by state—from 37 percent in Rhode Island to 134 percent in North Dakota (see Figure 1).5

Figure 1. 2012 Medicaid-to-Medicare Physician Fee Ratios, by State

Percentage of U.S. office-based physicians accepting new Medicaid patients in 2011 in each state based on the corresponding Medicaid reimbursement rate expressed as a percentage of Medicare reimbursement.

Medicaid and physicians

In general, physicians report that Medicaid pays poorly and that receiving reimbursement is administratively burdensome.6,7 Medicare, on the other hand, is generally viewed as paying less than private insurance but is relatively reliable and requires minimal administrative hassles.6 Numerous studies show low rates of physician acceptance of new Medicaid patients in comparison with Medicare and private insurance (see Table 3).8-13

Table 3. Medicaid Acceptance vs. Medicare and Private Insurance

Health Systems Change (2008)11 40% 58%
National Center for Health Statistics (2011)8 69% 83%
Jackson Health (2012)9 64% 75%

Reimbursement rates strongly correlate with physicians’ willingness to accept Medicaid payment (see Figure 1).8 For example, physicians from New Jersey, California, and Florida, which have Medicaid reimbursement rates that rank 49th, 47th, and 45th, respectively, were least likely to accept new Medicaid patients.5,9

The program’s administrative burden also negatively affects physician acceptance of Medicaid patients. In general, large practices with more administrative support were more likely to accept Medicaid patients. The complexity of Medicaid reimbursement may discourage participation among smaller practices. Health care marketing company SK&A interviewed more than 271,000 office-based physicians and found that 67 percent accepted Medicaid versus 84 percent who accepted Medicare.10 Among groups with more than 25 physicians, 91 percent accepted Medicaid, compared with 64 percent among practices of one or two physicians.10 Furthermore, 84 percent of hospital- or health system-owned physician groups accepted Medicaid, in contrast to 65 percent of other practices.10

Among medical specialists, general surgeons are one of the most likely to accept Medicaid and to provide uncompensated care to indigent patients. In one study, general surgeons ranked among the five specialists most likely to accept Medicaid, with an acceptance rate of 81 percent.9 Approximately 74 percent of surgeons provide uncompensated services, dedicating an average of 11.3 hours per month to charitable care.11 The hospital-based nature of general surgery practice, including call obligations, likely explains the tendency of surgeons to provide acute, urgent, and specialized care to a range of patients, regardless of their ability to pay.

Nonetheless, Medicaid acceptance varies among the surgical specialties. Surgical specialties with a higher proportion of elective cases, such as bariatric and plastic surgery, demonstrate lower-than-average Medicaid acceptance rates.9,10,12,13 The 2012 SK&A report revealed that of all physicians, bariatric and plastic surgeons, respectively, ranked the second and third least likely to accept Medicaid.10


When the ACA was enacted, 21 percent of Americans younger than age 65 were uninsured, and 38 percent of this population earned less than 100 percent of the FPL.14,15 When uninsured patients present for health services, most of the bill goes unpaid.16 The American Hospital Association reports almost $41.1 billion in uncompensated care was provided in 2010.17 State and local governments cushion this blow by funding 30 percent of uncompensated hospital care at a cost of nearly $18 billion annually.14 The federal government contributes funding in the form of DSH payments, which totaled $11.34 billion in 2012.18 However, hospitals, providers, and communities continue to absorb much of the cost.16

As enacted, the ACA called for expanding Medicaid to include all adults with an income below 138 percent of the FPL, which would add an estimated 16 million Americans to Medicaid rolls nationwide.1 The federal government would cover 100 percent of the costs associated with expansion of Medicaid to newly eligible populations in each state for the first two years, with a gradual transition to 90 percent in 2020 and beyond. The federal government would continue to fund states at current FMAP levels for existing Medicaid enrollees and eligible individuals. Of note, in anticipation of a reduction in uncompensated care associated with coverage expansion, the ACA included a schedule to steadily reduce DSH payments up to $5.6 billion by FY 2019.18

Concerns regarding the impact on state budgets and skepticism with regard to the long-term federal commitment to 90 percent of expansion costs led Florida and other states to challenge the constitutionality of the ACA. In June 2012, the U.S. Supreme Court ruled that Congress could not “coerce” states into expanding Medicaid by threatening to revoke existing Medicaid funding but upheld the remainder of the ACA, including the individual mandate that all Americans have health insurance coverage. The Supreme Court ruling allowed each state to decide whether to accept expansion.

Medicaid expansion

Given low provider reimbursement rates, Medicaid’s administrative shortcomings, and provider reluctance to accept Medicaid patients, would extending coverage to millions more Americans through this program truly lead to stable access to care? Studies demonstrate that Medicaid coverage of the nonelderly adult poor does improve access to health services and may, in fact, improve health outcomes. (See Table 4 for an overview.)19-23

Table 4. Effects of Expansion on Patient Access, Outcomes

Study State/subject Details/findings
Baiker et al. New England Journal of Medicine, 201319 Oregon/adults Prospective study (randomized controlled trial) with 6,000 patients comparing adults with or without new Medicaid coverageMedicaid increased use of preventive services, diabetes diagnosis and treatment, financial security, and decreased depression and catastrophic out-of-pocket expenses
Sommers et al. New England Journal of Medicine, 201220 New York, Maine, Arizona/ adults Retrospective review five years before and after expansion of state Medicaid programs in 2000Improved all cause mortality, rates of insurance coverage, delays in care, health quality
DeLeire et al. Health Affairs, 201321 Wisconsin/ adults Medicaid expansion in 2009Increased use of outpatient and emergency services; fewer inpatients stays and preventable hospitalizations
Garfield et al. Health Affairs, 201222 Diabetics Self-report comparison of patients with and without MedicaidPatients with coverage used more services, had lower out-of-pocket expenses, and reported better health care quality
Courtney-Brooks et al. Gynecologic Oncology, 201323 Virginia gyn/onc patients Half of patients referred to University of Virginia gyn/onc service are below 100% FPLWhen Medicaid programs require any form of copayment, cancer patients are less willing to use medications and services and experience poorer outcomes

A randomized controlled trial known as the Oregon Medicaid Experiment compared 6,387 low-income adults randomly selected by lottery to qualify for Medicaid coverage against 5,842 adults who were not qualified. Although the study did not demonstrate differences in measured outcomes for controlling hypertension or cholesterol in its first two years, it did show that Medicaid coverage was associated with a significant increase in the probability of diabetes diagnosis and treatment among newly enrolled patients, a decrease in the likelihood of positive screening for depression, and an increase in financial security, virtually eliminating catastrophic out-of-pocket expenses.19 The use of preventive services, such as mammograms, pap smears, fecal occult blood tests, colonoscopies, and cholesterol screenings also increased. Importantly, health care expenditures for the newly insured were approximately 33 percent more than for those without Medicaid—a number much lower than predicted.19

New York, Maine, and Arizona also expanded Medicaid among childless adult populations prior to full implementation of the ACA. Retrospective analysis of national survey data over five years preceding and following the expansion revealed significant improvements in all-cause mortality, rates of insurance coverage, delays in care, and health quality compared with neighboring states that did not widen coverage.20 Wisconsin initiated a similar expansion with automatic enrollment of newly eligible beneficiaries. Researchers found that new enrollees used outpatient and emergency services more frequently and had fewer inpatient stays and preventable hospitalizations. Excess emergency visits were determined to be primary care in nature, underscoring the importance of improving access to primary care physicians.21


Following the Supreme Court decision in 2012, states were left to weigh the benefits of improved access for the uninsured and significant federal monetary support against the long-term drawbacks of increasing the size of Medicaid programs. As of October 2013, 25 states and the District of Columbia had agreed to accept Medicaid expansion as outlined in the ACA, and 25 states had declined.24 Following is a brief analysis of the impact of Medicaid expansion on the nation as a whole, a discussion of the relevant factors involved in state decision making, and an assessment of how these forces are likely to play out in selected states.

If all states expanded Medicaid coverage, 16 million more individuals would be added to the Medicaid rolls. By covering 100 percent of the costs of expansion to previously ineligible populations during 2014–2016, with a gradual transition to 90 percent of expansion costs in 2020 and subsequent years, the ACA offers a significantly more generous federal contribution than current FMAPs.1 It is projected that during the first year of maximum cost sharing for the states, 10 percent of nationwide spending attributable to the Medicaid expansion would total $7.8 billion, which amounts to 6.2 percent of the total amount states spent on Medicaid in 2010.14 Averaged over the first 10 years, states would spend just 2.9 percent more on Medicaid. Furthermore, these projections do not account for potential gains from increased economic activity and state tax revenue generated by millions of new federal dollars spent in the state.25

Each state’s decision regarding Medicaid expansion reflects both fiscal considerations and political ideology. Fiscal considerations include each state’s current program size, FMAP levels and eligibility criterion, size of the uninsured population, magnitude of uncompensated care, and DSH funding levels. Table 5 details key statistics for each state and groups states by decision to expand.4,18,26

Table 5. Medicaid Expansion, Non-Expansion, and Undecided States: Projected Changes in Cost, Enrollment, and DSH Payments

State Projected change in spending with expansion Baseline Medicaid enrollees (thousands) Projected increase in state Medicaid enrollees with expansion FY 2011 DSH payments (millions) FY 2013 FMAPs
Expanding Arizona 1.50% 1,210 20% 165.8 65.68%
Arkansas 5.40 632 37 62.0 70.17
California 1.70 9,517 20 2,275 50.00
Colorado 2.80 506 44 185.0 50.00
Connecticut -2.80 466 43 201.4 50.00
DC 0.80 153 17 73.3 70.00
Delaware -11.00 171 9 5.6 55.67
Hawaii -3.10 194 32 20.0 51.86
Illinois 1.70 2,103 27 409.8 50.00
Iowa -2.60 430 17 81.9 59.59
Kentucky 5.20 758 35 202.8 70.55
Massachusetts -6.70 1,296 1 0 50.00
Maryland -3.20 761 19 88.4 50.00
Michigan 3.10 1,732 20 387.9 66.39
Minnesota 0.60 697 15 89.4 50.00
Nevada 4.60 224 61 88.4 59.74
New Jersey 1.70 817 36 1,269.9 50.00
New Mexico 1.60 464 45 29.1 69.07
New York -7.10 4,421 7 3,158.0 50.00
North Dakota 3.90 61 52 1.8 52.27
Oregon 2.30 464 86 52.9 62.44
Rhode Island 1.50 174 23 122.7 51.26
Vermont -10.90 139 2 37.4 56.04
Washington 0.20 1,081 13 348.9 50.00
West Virginia 5.20 363 32 73.3 72.04
Not expanding Alabama 4.70% 809 39% 449.1 68.53%
Alaska 1.50 112 33 15.2 50.00
Florida 4.60 2,466 52 350.1 58.08
Georgia 6.10 1,524 46 410.1 65.56
Idaho 3.70 197 45 24.7 71.00
Indiana 3.30 943 52 326.7 67.16
Kansas 2.60 320 53 69.9 56.51
Louisiana 3.20 993 40 600.2 61.24
Maine -3.80 300 15 51.5 62.57
Mississippi 6.60 669 35 204.1 73.43
Missouri 3.60 916 42 699.6 61.37
Montana 3.90 101 63 17.0 66.00
Nebraska 1.80 217 41 38.5 55.76
New Hampshire 1.60 129 33 148.6 50.00
North Carolina 4.50 1,477 38 408.9 65.51
Ohio 4.30 1,908 36 662.9 63.58
Oklahoma 2.80 654 31 44.0 64.00
Pennsylvania 2.10 1,904 28 869.3 54.28
South Carolina 5.20 813 38 530.7 70.43
South Dakota 2.90 110 40 0.5 56.19
Tennessee 3.60 1,319 28 139.2 66.13
Texas 3.50 3,732 48 1,579.1 59.30
Utah 4.20 275 69 24.0 69.61
Virginia 2.60 769 43 195.3 50.00
Wisconsin -0.60 843 25 0.1 59.74
Wyoming 2.40 72 38 0.8 50.00

Hence, the Medicaid expansion will affect each state differently. Ten states will experience cost savings over the 10-year period from 2013–2022; eight of these states have committed to expansion. The remaining states will experience a 3.2 percent average increase in their Medicaid budgets (see Figure 2).26 Assuming long-term responsibility for even a relatively small percentage of new Medicaid costs could be significant to a state budget in gross dollars. Excluding federal money, Medicaid already constitutes 12 percent of state spending.27

Figure 2. Projected Increase to State Medicaid Budget with Expansion26

The impact of Medicaid expansion on each state’s Medicaid budget averaged over 2013–2022.

As noted previously, the ACA included a schedule to steadily reduce DSH payments by as much as $5.6 billion in FY 2019.18 After full implementation of the ACA, however, it has been projected that approximately 23 million Americans will remain uninsured, with associated health care costs of $46.6 billion in 2019.28 It is difficult to fully anticipate how the DSH reductions will affect individual states or providers. The Centers for Medicare & Medicaid Services (CMS) has proposed that for 2014 and 2015, states with the lowest percentage of uninsured individuals will receive the largest cuts based on data that predates implementation of the ACA. Accordingly, a state’s acceptance of Medicaid expansion would not be reflected in the 2014–2015 calculation. For 2016 and beyond, rules for distributing the reductions have yet to be announced, but CMS has proposed that each state’s expansion decision would be accounted for in subsequent algorithms.18

The effect of DSH reductions on hospitals will vary significantly—by state as well as by the hospital’s payor mix. Safety-net hospitals, which represent 2 percent of acute-care hospitals but provide 20 percent of the nation’s uncompensated care, rely on DSH payments to remain financially solvent.29 DSH reductions probably will have a significant effect on safety-net hospitals in states that do not expand Medicaid because a substantial amount of care will remain uncompensated. Among states that do expand Medicaid, those with significant numbers of undocumented immigrants may also be sharply affected, because this population would remain ineligible for both Medicaid and the ACA premium subsidies and would be unable to purchase even full-cost insurance through the exchanges. In California alone, this subset of uninsured patients represents more than 1 million of the state’s estimated 2.6 million undocumented immigrants.

If DSH payments are reduced without concomitant reductions in the number of uninsured patients, hospitals may respond by limiting the number of uncompensated services they provide. Hsieh and Bazzoli demonstrated that not-for-profit hospitals in California reduced the amount of uncompensated care provided in the seven years following decreased DSH payments resulting from the 1997 Balanced Budget Act. More specifically, a 33 percent reduction in DSH payments correlated with a 15 percent decrease in uncompensated care.30

Hospitals and health care-related professional organizations in non-expansion states have been lobbying state legislatures to adopt expansion, based on growing consensus that many hospitals will be forced to cut budgets in response to rising costs and decreased reimbursement, negatively affecting both hospital staff and patients.31 In Florida, for example, a spectrum of professional organizations—including the state hospital association and various nurse, physician, and allied health care provider organizations—have urged the legislature to accept expansion.32 Similarly, in Georgia, the state hospital association has repeatedly called for expansion.29 Lindsay Caulfield, senior vice-president for planning and marketing, Grady Health System, Atlanta, GA, which received more than $100 million in DSH payments last year, is quoted in the New York Times as stating, “We were so thrilled when the law passed, but it has backfired.”29

Notably, the enhanced FMAP (100 percent federal support for expansion costs in the first two years, followed by transition to 90 percent by 2020) only applies to newly eligible Medicaid populations in each state. New enrollment of previously eligible but not enrolled individuals would only be covered at the existing state’s FMAP. Some observers say that previously uninsured individuals now seeking enrollment in Medicaid due to the program’s enhanced visibility due to the ACA are “coming out of the woodwork.”27 Some states, including Texas, have a significant portion of Medicaid-eligible uninsured individuals leading to a potentially significant “woodwork effect,” expanding the state Medicaid program at current FMAP levels and relatively high cost to the state.

Spotlight on selected states

California administers one of the largest Medicaid programs in the country (termed Medi-Cal), insuring 7 million residents with an additional 1.4 million beneficiaries expected under the expansion.33 Medi-Cal, however, is chronically underfunded, ranking 47th in terms of reimbursement rates.5 In 2011, Medi-Cal reimbursement dropped 10 percent due to state budgetary shortfalls.34 Consequently, 57 percent of California physicians refuse to accept new Medicaid patients—leaving it with the second-lowest acceptance rate in the nation.8 A survey of Medi-Cal enrollees revealed that 18 percent have difficulty accessing a primary care physician,35 although this problem may be mitigated by the 136 percent increase in Medicaid reimbursement to primary care providers in 2014 and 2015.5 Nearly twice as many patients (34 percent) report difficulty accessing specialty care, including surgical services.35 Nonetheless, specialist reimbursement rates are expected to remain unchanged.5

Maryland currently administers a relatively expansive Medicaid program, which offers a partial benefit package called the Primary Adult Care (PAC) program for adults who earn less than 116 percent of the FPL but are ineligible for basic Medicaid. This program includes primary care, prescription medications, and outpatient mental health and substance abuse services. Because PAC falls short of fulfilling all of the ACA’s Medicaid coverage requirements, Marylanders currently enrolled in PAC will be considered a new expansion population because they will be newly eligible for full benefits. Maryland, then, translates its $100 million annual investment in PAC into instant savings as it transfers that cost to the federal government.25 Furthermore, the University of Maryland estimates that Medicaid expansion will save the state up to $714 million annually in uncompensated hospital care, with $3.1 billion in total savings between 2014 and 2020.25

More than a quarter of the Texas population is uninsured, the highest percentage in the nation.36,37 Both fiscal conservatism and ideology have guided Texas’ approach to Medicaid, and current eligibility criteria are among the most restrictive in the U.S., excluding all non-disabled, non-elderly adults without dependent children.38 Expanding Medicaid would extend eligibility to 1.75 million Texans. However, the state’s 1.65 million undocumented immigrants—who account for nearly 28 percent of Texas’s uninsured—would remain ineligible for coverage.39,40

The Texas Health and Human Services Commission projected that expansion would cost the state $15 billion to $16 billion over the first 10 years of implementation.41 As a percentage of existing state spending, Texas would spend a projected 6.1 percent more on Medicaid through 2022 than it does currently. By 2020, when maximum state cost sharing takes effect, this increase translates into an additional $370 million per year.42

Texas also could experience a significant “woodwork effect” that would affect the state budget. Texas has a large population of individuals currently eligible for Medicaid but not enrolled. If these 289,000 people were to enroll, the state of Texas would contribute 40.7 percent of the costs (in accordance with the current FMAP).38 This increased enrollment may occur as a result of the national discourse and publicity, regardless of whether Texas accepts Medicaid expansion.

Medicaid expansion may require additional state spending in Texas, but without it, the $4 billion to $7 billion in uncompensated care delivered to uninsured residents each year will continue to burden hospitals, physicians, and local governments.43,44 As a result, numerous counties with large uninsured populations have passed resolutions supporting Medicaid expansion.36

Arkansas has relatively restrictive Medicaid eligibility criteria. Adults who are not pregnant, elderly, or disabled must have children and incomes below 17 percent of the FPL to qualify.45 Rather than vastly expanding Medicaid, the state was granted a three-year Section 1115 Demonstration Waiver to use federal Medicaid expansion funds to purchase private insurance for approximately 200,000 Arkansans who otherwise would have been covered under the expansion.46 Private insurance plans will pay physicians higher reimbursement rates and will allow enrollees to maintain their coverage in the event that their income increases above 138 percent of the FPL, transitioning them from the Medicaid waiver program population to the subsidy population.45 It is anticipated that the federal Medicaid contribution will be sufficient to cover all individuals eligible for the alternative coverage, but these enrollees would be subject to the same copayment and cost-sharing requirements as wealthier Americans with the same health plan. The program will be evaluated in terms of coverage and outcomes to determine if it will be continued beyond three years.46 Other states rejecting the expansion, such as Maine, intend to follow Arkansas’ lead.


The interaction between Medicaid expansion and other elements of the ACA will be complex. The insurance exchanges, for example, will expand the population of privately insured patients, and the resulting impact on competition for physicians’ services has yet to be fully realized.26 Predicted physician and surgeon shortages likely would exacerbate the problem.47

However, Medicaid expansion offers millions of Americans younger than age 65 and with incomes less than 138 percent of FPL greater opportunities to access insurance coverage.14 Despite persistent access problems related to low provider reimbursement rates,8-13 Medicaid coverage is associated with improved health outcomes in previously uninsured beneficiaries.19-23

Uncompensated care costs without expansion are expected to reach $80 billion in 2016.14 Decreasing the number of uninsured Americans by expanding Medicaid enrollment will decrease the burden of uncompensated care that physicians, hospitals, communities, and states now bear. General surgeons and other providers who are likely to render services regardless of patient payor type and who provide the most uncompensated care may well benefit from the transition of previously uninsured patients to Medicaid.11 Hospitals may benefit from Medicaid expansion as well. Safety-net hospitals, in particular, are looking to Medicaid expansion to offset DSH funding decreases.

Medicaid expansion provides significant federal assistance for states that elect to extend coverage to more of their poorest residents. Whereas Medicaid already consumes a significant proportion of total spending in many states, the reluctance to incur any additional Medicaid commitments should be taken into consideration. However, considering the fact that the current proportion of state and federal contributions to a state’s Medicaid costs vary widely based on the FMAP formula, expansion is accompanied by a federal commitment to pay all costs associated with expansion until 2016, gradually decreasing to 90 percent of expansion costs in 2020 and beyond.

Ultimately, Medicaid expansion provides the prospect of coverage to the poorest portion of the uninsured population and of an additional source of reimbursement for hospitals and providers caring for these patients. The effect of this provision is likely to vary from state to state and practice to practice, depending on how the state approaches the expansion, the nature of the state’s Medicaid program, and each hospital’s or surgeon’s patient and payor mix.



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