As Medicaid continuous enrollment ends, hospitals brace for more patients who can't pay

Millions of Americans are likely to lose Medicaid coverage this year. That's bad news for hospitals as well as patients.

Hospitals will likely see bad debt soar when a pandemic-era rule expires allowing states to kick patients off Medicaid April 1, according to a January report from Moody's Investors Service. The rule had encouraged states to keep beneficiaries continuously enrolled — regardless of eligibility — in order to receive higher reimbursements. Once states start trimming their rolls, however, hospital revenue is expected to decline as healthcare providers will need to assume costs from an expected wave of uninsured patients.

A loss of millions of insured patients — even at the lower rates Medicaid pays — comes at an already-grim period for the medical field, which is coping with the wind down of billions in federal pandemic relief funding and significantly higher labor costs and shortages. Those shortfalls have hampered hospitals' ability to return to prepandemic conditions, Moody's said. 

Read more: When COVID is no longer a public health emergency, what happens to healthcare?

"Labor shortages, which resulted in weak volume trends in 2022 because hospitals were unable to fully staff beds or maintain services, will continue to contribute to an uneven volume recovery," Moody's analysts wrote. "The degree to which hospitals can make progress toward a return to prepandemic volumes will affect credit quality in 2023."

Before the pandemic, about two-thirds of people who lost Medicaid had a period of uninsurance, according to the Kaiser Family Foundation. It estimates that between 5.3 and 14.2 million people could lose Medicaid coverage in the following 12 months, while a report from the Department of Health and Human Services last year predicted up to 15 million Americans could be removed, or about 17% of those enrolled in Medicaid and the Children's Health Insurance Program.

Under the continuous enrollment provision, those two programs grew by 28% from February 2020 to cover almost 91 million people, according to Kaiser. 

States will be able to resume screening for Medicaid eligibility April 1, after reviews were suspended at the outbreak of the coronavirus. The government boosted Medicaid reimbursements by 6.2% during the pandemic, but those additional payments phase out this year after several extensions. Medicaid is one of the top budget items for states, which pay an average of 31% of the cost of Medicaid, while the federal government shoulders the rest, according to Kaiser. Last year, all 50 states spent a total of  $646 billion on Medicaid and CHIP.  

Read more: U.S. extends COVID public-health emergency to maintain access to care

Shrinking Medicaid rolls will disproportionately harm poorer hospitals, including rural ones, which have fewer of the more-lucrative privately-insured patients, said Michael Abrams, managing partner at health-care advisory firm Numerof & Associates. 

The developments will also hurt nursing homes, where increases in Medicare reimbursements aren't keeping up with inflation—  a credit negative for operators, Moody's said. "Beyond 2023, we believe home-health providers are susceptible to further Medicare reimbursement rate cuts," the analysts said.