Association for Public Policy Analysis & Management

(ACA), signed into law March of 2010, required states to expand Medicaid, the US health

insurance program for the poor, to cover more low-income Americans. However, the 2012 US

Supreme Court decision in National Federation of Independent Business v. Sebelius ruled the

mandatory Medicaid expansion as unconstitutionally coercive of states, rendering it an optional

reform. Given that the voluntary ACA Medicaid expansion with 100 percent of federal funding

did not go into effect until 2014, researchers have been limited in their ability to analyze its

effects due to a lag in data availability. States interested in getting a head start in covering

additional low-income adults, however, had the option of expanding early at their regular

matching rate. Since the enactment of the ACA, 29 states, including DC, have adopted the

Medicaid expansion, with seven states electing to expand early. This study takes advantage of

early expanding states by examining the initial effects of covering additional numbers of low-

income adults on hospitals’ provision of uncompensated care. Uncompensated care costs (UCC)

consist of a hospital’s bad debt charges and charity care, a major portion of which are due to

caring for patients who lack insurance and are unable to pay out of pocket for medical expenses.

The literature suggests that, by expanding health insurance to more of America’s poor, hospitals

will experience a decline in UCC since these patients will at least have minimal coverage. The

natural experiment presented by the US Supreme Court ruling allows for the use of a difference-

in-difference (DiD) research design to analyze the effect of expanding Medicaid early on

hospital UCC. This analysis relies on data from a national sample of Medicare-certified hospitals

that are required to submit publicly available annual cost reports to the Centers for Medicare and

Medicaid Services (CMS). These reports include hospital UCC data, facility characteristics,

utilization data, cost and charge data, and financial statement data. The most recent data

available are through fiscal year (FY) 2013, which precludes the ability to examine states that

expanded in 2014, but permits the ability to examine states that expanded early. This analysis

compares hospitals in states that expanded early (treatment group) to hospitals in states that did

not expand early (control group) at two points in time: pre-expansion and post-expansion.

Preliminary DiD results suggest that the Medicaid expansion had the expected effect: the

difference-in-difference estimates for the effect of expanding Medicaid on hospital UCC indicate

that expanding coverage to more low-income adults decreased hospital provision of

uncompensated care. Moving forward, this study will include additional pre-treatment years and

control variables in the analysis to test the robustness of these initial results. Evidence from this

study, on the extent to which expanding Medicaid to more low-income adults reduces hospital

uncompensated care costs, may help inform state policymakers considering effects of Medicaid

expansions and federal policymakers considering the appropriate level of Disproportionate Share

Hospital (DSH) payments.