Increases in patient revenue from Medicaid and private insurance may not be entirely commensurate with increased demand for care. Revenue from Medicaid patients might be limited to the extent that states have or will cut back on reimbursement and benefits (Bachrach et al. 2012). Medicaid reimbursement levels to hospitals and physicians have historically been low compared to Medicare and private payers. According to the American Hospital Association (AHA), hospital payment-to-cost ratios (payments for services as a percentage of the cost of providing services) average 88.7 percent for Medicaid, compared to 128.3 percent for private payers (AHA 2010). The recession of 2007–2009 and state budget problems have led to further reductions in Medicaid reimbursement rates to hospitals, including 33 states that cut rates in 2010 (Smith et al. 2010). Increased revenue from privately insured patients also depends on the payment rates that plans sold in the new state-based marketplaces negotiate with hospitals.
The amount of patient revenue from Medicaid and private payers can also be affected by whether reimbursement favors certain types of services over others. Historically, hospital payment in Medicaid has generally favored (that is, covered more of the cost of) inpatient over outpatient care (Ginsburg and Grossman 2005). This could be a problem if initiatives to increase use of primary care and outpatient care services—and to decrease use of inpatient care—are not accompanied by a realignment of financial incentives for outpatient versus inpatient care. Some states, including New York, have increased outpatient rates relative to inpatient rates in their Medicaid programs (Quinn and Courts 2010).
Some policy analysts also have raised concerns that revenue from new, privately insured patients might be limited to the extent that some services are not covered or will require high cost-sharing on the part of patients (Witgert and Hess 2012). Although qualified health plans in the marketplaces are required to offer “essential health benefits” agreed upon by the state and federal government, states and health plans still have flexibility in defining benefit packages based on benchmark plans in the state. The level of coverage of certain services, such as inpatient mental and behavioral health, may be of particular importance to safety net hospitals that often provide such services. Most private plans include deductibles and co-pays that could limit direct revenue from private insurers. However, cost-sharing subsidies are available for lower-income enrollees in marketplace plans. In addition, with more advanced information and billing systems, many safety net hospitals have become adept at collecting cost-sharing amounts and bad debt from privately insured patients (Felland and Stark 2012).