Medicaid vs. All of Us

Medicaid vs. All of Us
by Gary M. Votour

According to the National Association of State Budget Officers (NASBO) and the National Governors Association (NGA), almost all states are cutting Medicaid funds to balance overwhelmed budgets. During fiscal year 2012 33 states have lowered provider payments to nursing homes, hospitals and physicians. 16 states have frozen provider reimbursements, and 25 states have or are introducing benefit limits for their Medicaid recipients. (NGA & NASBO, 2011).

Should health care providers and advocates be able to sue state-run Medicaid programs when they decide to cut reimbursements for care in order to balance state budgets? The U.S. Supreme Court decided yesterday that yes, yes they should. This decision will now ripple throughout the country, as state governments continue to eliminate funding for their individual Medicaid programs. In most cases, the cuts are being made to balance state budgets and narrow massive deficits. In at least ten states, providers and health care advocacy groups have tried to sue state governments to prevent cutting services to the state’s poor and elderly. Now they are heading to Federal courts in the wake of this decision.

In 2011, New Hampshire’s reductions in Medicaid reimbursements by $115 million to hospitals led to the elimination of the jobs of over 800 health care providers. New Hampshire state government argued that the hospitals can simply tighten their belts and be run more efficiently, and they claim that it will not affect patient safety to force them to do so by giving them less money for the same amount of services. When 10 New Hampshire hospitals tried to sue the Medicaid program in State court to stop these cuts last summer, the New Hampshire Attorney General ruled that they did not have that right, citing that the hospitals themselves had not experienced ‘irreparable injury’ as a result of the cuts. (Monitor Staff, 2011).

Earlier this month, those same hospitals filed a lawsuit in federal court to block the cuts. Their argument is simple. If enough cuts are allowed to Medicaid programs, doctors and hospitals will no longer be able to provide services for Medicaid patients. They argue that less providers accepting Medicaid reimbursements does harm patient safety, and that forcing hospitals to cut services to the poor is illegal. (Gotbaum, 2012)

While sidestepping the central issue of the cuts themselves, the Supreme Court’s narrow 5 to 4 decision decided that lawsuits by health care providers in California could go forward with their lawsuit against California’s Medicaid program (Medi-Cal). This means that the battle in California and New Hampshire (and other states) will continue, as advocates fight to prevent cuts to Medicaid budgets in federal and state courts. Although the Supreme Court is divided on this issue (the vote was split between the liberal vs. conservative judges), it now brings a twist to the legal battle that has been ongoing for several years. The battle to prevent cuts to Medi-Cal has been even more convoluted than the one in New Hampshire.

When the cuts to Medi-Cal were first introduced, health care providers and advocates for the poor sued the state to prevent them. After a long legal battle, they won in State Court when the 9th Circuit Court of Appeals blocked the cuts. Then the Obama administration approved the cuts. So they went to federal court and this case has worked its way all the way up to the highest level. The conservatives on the Supreme Court, led by Chief Justice John G. Roberts, Jr. wanted to block the ability for anyone to file lawsuits in state courts protesting Medicaid cuts. Yesterday’s decision did exactly the opposite. (Savage and Megerian, 2012)

Right now you may be saying to yourself “Gary, this isn’t about ethics, it is about politics. It’s about budgets. It’s about taxes. It’s about eliminating waste and abuse of Medicaid funds.” If that’s you, I say you are wrong. Health Care is an industry in this country that exists to make money. Most hospitals exist to make a profit. Even a non-profit or charitable hospital still needs to make enough money to pay their staff and run their facility. We all pretty much agree that no one in this country should be denied access to health care, but some people cannot afford it. Whether they are elderly, poor or disabled, the reality is that we pay for their care. First of all, we do so because most people live by the golden rule; do to others what we would have them do to us. We all get old. We can all become poor. We can all become disabled. By supporting a society that takes care of us if and when we do, we take care of ourselves. The other reason we do so is even deeper… we do so because it is what is right. It is what is compassionate. It is how we show we care. That is an ethical choice, and it’s the right one.

Many feel that the states should be able to cut Medicaid budgets at will to balance state budgets and prevent higher taxes. They feel these decisions by states should not be something that should be fought by providers and advocates in court. That is the wrong choice. To understand why, you need to bear with me while I explain cost-shifting.

Cost-shifting is a term that is used in health care to describe the process hospitals and doctors use to shift costs between different groups of patients based on how they are reimbursed for the services they provide. When a care provider is being paid by Medicare or Medicaid, the amount of money they receive for their services is controlled by the reimbursement they are paid by the federal or state government. Since both Medicare and Medicaid generally pay less for services than private insurers do, the unpaid cost of the service is shifted to those who can pay more for it. This is really important to understand, so I’ll explain this with an example.

Let us say you run a hospital. On any given day, 100 people walk into your emergency room with an assortment of injuries and illnesses. The average cost for you to provide those services is $1000 per patient. 75 of those patients either pay for your services out of pocket or have private insurance, 20 have Medicare and/or Medicaid and 5 have no insurance and cannot afford to pay. You must provide the same level of care to all 100 patients, because there are laws that require you to do so. So you take the cost of those 5 patients who cannot pay and divide it up amongst all the other patients. That is $5000 (5 times $1000) divided by 95 (patients who can pay) and adds $53 to their bills. Simple enough, and not that big a burden, right?

Now assume that the average reimbursement you can expect to receive from Medicare and Medicaid is only $900. Keeping in mind that your hospital cannot afford to lose money, let’s do the math again. We still have the same patients who cannot pay, but now we must shift that cost to 75% of the patients who have private insurance or who can pay out of pocket. That $5000 (5 times $1000) is now divided by 75 and not 95, adding $67 to each bill. Also, there is now the $100 for the 25 Medicare and/or Medicaid patients that needs to shift. That $2500 ($100 times 25) is divided amongst the 75% percent, adding an additional $34 to the $67, so a total of $101 dollars is added to that original $1000 for each of the 75% with insurance or who pay out of pocket. That is a ten percent increase, and you need to understand that your insurance company is not going to take that extra $100 out of their profits, they are going to pass that back to you and your employer in higher insurance premiums and copays.

Now let’s look at what happens when you are running a hospital in a different part of town… one where far more patients are elderly or poor. Those 1000 patients still cost you the same average of $1000 to care for, but the ratio of who pays is different. Only 50% of your patients here have private insurance or pay out of pocket. 40% have Medicare and/or Medicaid, and 10% can’t pay. Using the same formula as before, you shift the $5000 (5 times $1000) to the 50% with private insurance or who pay out of pocket, adding $100 to each bill. You also shift the $4000 for the 40 Medicare and Medicaid patients ($100 times 40) to the 50%, adding another $80 to the bill, bringing their total up to $1,180.

Now think about what happens when the reimbursement rates for your Medicaid patients are cut by 10% or 20%. To keep accepting Medicare and Medicaid patients, you either lose so much money you eventually have to close, or you shift so much costs to the other patients they go somewhere cheaper. Realizing that you need to lower costs to stay open and compete with other hospitals, you stop accepting Medicare and Medicaid. The break point for this decision comes sooner for the hospitals that provide health care for the higher percentage of Medicare and/or Medicaid patients. That translates to a simple fact… when Medicaid reimbursements are cut by the state, hospitals curtail their services from those who need them most in the places where they are most needed.

The other way to look at this is from the state’s perspective. When cutting funds to Medicaid, governments officials often state that the facilities will need to learn how to make do with less. They will often cite large executive salaries and high overhead costs as areas where the hospital should cut to make ends meet, and justify their decision to cut reimbursements by saying they need to in order to keep from raising taxes. This is a top-down approach to spending that impacts quality of care, no matter what is stated. Although it may translate to fewer taxes, the costs of the cuts are felt proportionately greater by those who either have health insurance or self-pay. The proportionate impact is felt even more by those with high copays when they become sick or injured.

It is important to realize that cutting Medicaid may make a few vocal opponents of government funded health care happy in the short term, but it passes those cuts onto all of us eventually. Even when hospitals close or stop accepting Medicare and/or Medicaid it impacts us all. When the elderly, poor and disabled have less access to health care, they are less likely to avail themselves of preventative services. When people do not approach their own health with a proactive perspective, they suffer more from chronic illness later in life, and this in turn again raises the costs for all of us. In other words, if that local hospital in our second example closes or stops accepting Medicare or Medicaid, the people nearby who need their services the most do without preventative care like cancer screenings. Fewer screenings to detect cancer leads to more cancer patients down the road.

So you see… it is an ethical question. It is one not to be left to state officials who may be serving a vocal constituency or jockeying for public support during a re-election. That’s why the U.S. Supreme Court has decided that if the providers feel that a state’s cuts to Medicaid are illegal or unethical, they can take them to court and force the state to publically defend those decisions, out in the open, in front of all of us. After all, we’re the taxpayers, the ones whose money the state is entrusted to spend on our behalf. They work for us, and everyone should be able to hold their employees accountable.


Gotbaum, R. 20102. Lawsuits over state cuts to Medicaid. NHPR. Januray 11, 2011. Retrieved from

Monitor Staff. 2011. State Responds to hospitals’ lawsuits. The Concord Monitor. September 27, 2011. Retrieved from

National Governors Association (NGA) and the National Association of State Budget Officers (NASBO). 2011. The fiscal survey of states. Spring 2011. Retrieved from

Savage, D. and Megerian, C. 2012. Supreme Court lets providers continue suing to stop Medi-Cal cuts. Los Angeles Times. February 23, 2012. Retrieved from,0,7446743.story

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