With the recent passage of a significant Republican tax and spending bill, concerns are mounting over impending cuts to Medicaid and the health insurance marketplaces established by the Affordable Care Act. These reductions could potentially leave around 10 million Americans without health insurance by 2034, according to the Congressional Budget Office.
Lawmakers have defended these cuts as a necessary measure to mitigate a larger budget deficit, which has been increased by recent tax cuts and spending initiatives. However, this perspective may overlook the broader societal costs that come when individuals lose access to healthcare, costs that ultimately affect hospitals, clinics, individuals, and, by extension, the federal government.
When people find themselves uninsured, where do they turn for healthcare? Unlike typical consumer products, health care is a need that does not diminish simply because individuals cannot pay. Many uninsured individuals seek care at federally qualified health centers (FQHCs). These essential community clinics offer comprehensive primary care, dental and mental health services, and specialty care at rates based on a patient’s ability to pay. In fact, about 90% of FQHC patients earn at or below 200% of the federal poverty line, emphasizing their role as a critical resource for the uninsured. The FQHC network includes over 15,000 sites that served over 31 million patients in 2023.
While cutting the number of Medicaid beneficiaries can lessen government expenditure on the Medicaid program, it places substantial financial strain on FQHCs, which rely heavily on Medicaid patients for revenue. The federal grant funding—approximately $5.6 billion allocated in 2023 —is currently vital to helping these clinics cover costs for uninsured patients. Without a corresponding increase in federal grants, cuts to Medicaid could jeopardize the viability of these clinics and the services they provide. FQHCs could be compelled to limit their spending per patient, struggle to hire providers, or even scale back the range of services offered. This could lead to higher volumes of uninsured patients flocking to hospital emergency rooms as a last resort for care.
In many cases, hospitals serve as the insurers of last resort, treating patients regardless of their insurance status. Federal law mandates that hospitals must offer care to anyone who arrives at their emergency department, and nonprofit hospitals, a significant portion of the healthcare system in the United States, must provide community benefits to maintain their tax-exempt status. This often takes the form of charity care or discounted health services. Yet, cutting Medicaid will also adversely impact hospitals. Almost 50% of rural hospitals already operate at a loss, and the impending Medicaid cuts threaten to put an additional 300 of these facilities at risk of serious financial distress.
Although recent allocations of $50 billion for a “Rural Health Transformation Program” aim to address some of the concerns surrounding rural hospitals, analysis from the Kaiser Family Foundation suggests that this funding only compensates for one-third of the anticipated revenue losses resulting from Medicaid cuts.
Research by economists Craig Garthwaite, Tal Gross, and Matthew Notowidigdo has shown that hospitals frequently act as insurers of last resort when Medicaid enrollment is reduced; they end up shouldering the financial burden. According to the Medicaid and CHIP Payment and Access Commission (MACPAC), hospitals provided around $22.5 billion in uncompensated care to uninsured individuals in 2021, with the total costs of charity care and bad debts reaching about $40 billion—approximately 5% to 6% of overall hospital costs.
Nonprofit hospitals, regardless of their religious affiliation, report consistently higher costs associated with uncompensated care. In contrast, for-profit hospitals experience minimal changes in their uncompensated care costs when the number of uninsured individuals increases. On average, each added uninsured person is estimated to raise hospitals’ uncompensated care costs by about $800.
The implications of rising uninsured rates extend to individual patients as well. Even those who maintain health insurance often face significant medical bills, high deductibles, and cost-sharing obligations that can lead to substantial medical debt or even bankruptcy. A study from KFF indicates that roughly 20 million people—around 8% of adults—carry some level of medical debt, with 6% owing more than $1,000. Overall, Americans collectively hold about $220 billion in medical debt, with even higher incidences among the uninsured (11%), low-income individuals (11%), and people with disabilities (13%).
For those without insurance, a hospital admission can lead to dire financial consequences. A study titled “The Economic Consequences of Hospital Admissions” reveals a nearly 40% increase in the likelihood of bankruptcy for uninsured individuals following a hospital stay. It estimates that hospital admissions account for approximately 6% of bankruptcies among the uninsured and 4% among the insured. Conversely, research consistently shows that obtaining health coverage significantly mitigates the risk of financial disaster. For instance, a study analyzing Medicaid expansions in the mid-1990s and early 2000s found that a 10 percentage point rise in Medicaid eligibility correlates with an 8% decrease in consumer bankruptcies. Similarly, the Oregon health insurance experiment indicates that access to Medicaid reduces the likelihood of unpaid medical bills reaching collection agencies by 25% and lowers out-of-pocket medical expenses by 35%.
In addition to the economic implications, lack of health insurance negatively affects individuals’ health outcomes. Uninsured individuals typically receive less preventive care and struggle to access necessary prescription medications and specialized treatments. This situation not only harms the uninsured but also has negative repercussions for the broader economy. Evidence suggests that health insurance coverage during childhood contributes to improved productivity and economic outcomes in adulthood. By age 28, individuals who had Medicaid coverage as children showed higher college enrollment rates and improved earnings while relying less on governmental assistance. The analysis also suggests that for every dollar invested in childhood Medicaid coverage, the government could recoup about 58 cents through increased tax revenues.
A workforce burdened with poor health adversely impacts overall economic productivity, as unhealthy employees tend to work fewer hours and reduce labor output.
While the federal government may find it easier to trim Medicaid eligibility, this move shifts financial burdens onto other sectors of society, including community health clinics, hospitals, individual patients, and ultimately, taxpayers. As health insurance coverage diminishes, everyone—especially those most vulnerable—will grapple with the consequences.
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