Sinai Chicago, a safety-net health system located on the city’s South and West sides, serves patients who could face life expectancies many years shorter than city residents who live just miles away.
Most patients are African American and Latino, and face greater incidences of chronic disease and worse health outcomes, said Ngozi Ezike, Sinai’s president and CEO.
“It gives us a great opportunity to try to narrow these health disparities between the individuals who are in our community and those who are just a few miles away that enjoy many more years of life and higher quality of life,” she said.
As such, Medicaid is a “critical” payer for the health system, according to Ezike. About 70% of the provider’s patients are enrolled in the public insurance program for low-income Americans — a significant portion compared with Illinois as a whole, where about 25% of the residents are covered by Medicaid.
Now, Sinai, along with providers across the country, are contending with the potential fallout from cuts to the safety-net insurance currently under consideration in Congress.
Limiting the flow of Medicaid dollars would have a considerable impact on providers, particularly those that serve higher numbers of low-income people, hospitals in rural communities and long-term care providers who already rely heavily on the program, experts say.
Medicaid has a wide reach, accounting for about one-fifth of spending on hospital care and more than 60% of long-term care services, according to health policy research firm KFF. Some providers may need to reduce services, lay off staff or consider a sale to restrain the impact, experts say.
Sinai, for example, has built contingency plans to ensure the health system can sustain its operations, which could include service cuts, Ezike said.
“We understand that we might have to provide less care — to cut and minimize our losses — rather than continue to try to do everything and not be able to provide anything in the long run,” she said.
Shifting costs to states
Last month, Republican lawmakers approved a budget blueprint that calls for the House Energy and Commerce Committee, which oversees Medicare and Medicaid, to find $880 billion in savings.
The resolution didn’t name Medicaid, but legislators would struggle to find cuts of that magnitude without reducing funding for the program. The $880 billion target is likely impossible to hit without cutting major healthcare programs under the committee’s purview, according to the Congressional Budget Office.
Lawmakers’ method for reducing spending on Medicaid isn’t yet clear, though the Energy and Commerce Committee is expected to meet next week to mark up its portion of the reconciliation package and hash out legislation.
Most of the plans under consideration to cut Medicaid involve shifting costs onto states, said Edwin Park, research professor at the Georgetown University McCourt School of Public Policy, during a panel discussion held last month by the University of Southern California Annenberg’s Center for Health Journalism.
For example, Congress could place a per capita cap on federal spending growth for Medicaid. Over time states will receive less money per enrollee from the federal government, increasing financial pressure to cut provider payment rates or reduce benefits, said Alice Burns, associate director with KFF’s program on Medicaid and the uninsured.
Lawmakers could also set a cap on federal spending just for enrollees covered through Medicaid expansion, where most states expanded eligibility for the safety-net insurance program under the Affordable Care Act.
Other options include restrictions on provider taxes — where states levy taxes on providers and use the revenue to increase the state funding share, which the federal government matches — and eligibility and renewal changes, like work requirements.
Work requirements, which tie Medicaid eligibility to work, education or volunteer hours, could result in beneficiaries losing coverage, though some may be able to re-enroll in the program eventually, Burns said. Many enrollees may not know they’ve been removed from the program until they go to the doctor or try to fill a prescription, potentially leaving providers on the hook for uncompensated care, she added.
Medicaid finances a significant share of healthcare spending
Personal healthcare spending by payer, 2022
States also have to balance their budgets, unlike the federal government, leaving them the option to raise taxes, cut other parts of their budgets or slash Medicaid, Park said. That could include reducing provider rates, limiting eligibility or cutting benefits.
Cuts could lead to big coverage losses. Millions of people could lose Medicaid or become uninsured if Congress implements per capita caps or limits provider taxes, according to an analysis published this week by the CBO.
“It would be up to each state to make the painful decisions they need to make to balance their budgets,” Park said.
‘Drastic impact’ for providers
The size of the potential cuts — possibly hundreds of billions of dollars — means ramifications for providers, Burns said.
“It doesn’t really matter how you cut the program, cuts of that size will matter,” she said.
The cuts could come as many providers are still recovering from the COVID-19 pandemic, when hospital margins narrowed as facilities faced heightened expenses for labor and supplies.
Though many hospitals’ financial performance improved starting in 2023, the recovery was uneven — including for hospitals that relied more heavily on Medicaid.
Operating margins were 1.7% and 2.3%, respectively, for hospitals with high shares of Medicaid patients in rural and urban areas, according to an analysis by KFF. In comparison, operating margins across all hospitals was 5.2% in 2023.
After COVID, many hospitals were already looking to find efficiencies and reduce expenses, said Mary Haddad, president and CEO of the Catholic Health Association, which represents Catholic hospitals and other providers.
“We recognize the fact that we have finite resources, and we’re going to have to figure out how we’re going to continue to provide care for those most in need,” she said. “It will have a drastic impact.”
Hospitals will look to cut costs, potentially by laying off workers or reducing services, said John Fanburg, managing member and healthcare law chair at Brach Eichler. Physician practices could close their doors, or they might try and sell themselves to larger health systems or private equity firms.
The impact will be worse for providers who serve higher numbers of Medicaid patients, Fanburg said. If Medicaid is a larger part of their budget, the more concerned the system will be “because a 5% decrease has significant implications if Medicaid is paying $10 million a year,” Fanburg said. “Where do you find that?”
Rural hospitals could also be hit hard by cuts to Medicaid, as these providers tend to have slimmer margins and are more likely to operate in the red, said Zachary Levinson, project director of KFF’s project on hospital costs.
And if their patients lose coverage, costs of their care could fall on providers. Many community health centers — which offer primary care to a low-income population where half of patients are on Medicaid — already operate with negative margins and limited days of cash on hand, said Kyu Rhee, president and CEO of the National Association of Community Health Centers.
“The health center has to endure those costs. And if you don’t have the money to pay for that, what do you do? With that level of negative margin and not much cash on hand, you’re actually forced to either let people go or close sites,” he said.
Meanwhile, if beneficiaries lose coverage, they may avoid seeking out healthcare services due to the potential cost — putting additional pressure on other parts of the healthcare system.
Before the ACA was passed, many patients used the emergency department for primary care, Haddad said. That sometimes caused overcrowding in emergency departments or delayed care for sicker patients — and could make a resurgence if Medicaid is cut, she said.
Mount Sinai Hospital
Emily Olsen/Healthcare Dive
Sinai’s Ezike worries that Medicaid cuts, in addition to hitting the health system, could ripple across the safety-net ecosystem. Other providers refer patients to Sinai because the health system offers a range of specialties others might not be able to offer, such as a high-level neonatal intensive care unit.
And if there are cuts, some smaller safety-nets could close their doors, she said.
“That would continue this spiral of having people not access care and then present much later with much more advanced disease, resulting in much worse outcomes,” Ezike said. “That life expectancy gap that we’re actively working to narrow will actually have the possibility of getting worse.”
