Rural hospitals serve millions of Americans, including some of the nation’s most vulnerable populations. In emergency situations, their close proximity can save lives. Even in nonemergencies, rural hospitals are often the center of health care delivery systems where community members can access a full range of health care and social services. Yet the Senate’s Better Care Reconciliation Act (BCRA), which would repeal the Affordable Care Act (ACA) and drastically cut federal support for the Medicaid program, would disproportionately harm rural hospitals and the communities they serve. The legislation will raise costs and limit access to critical health care services, possibly harming the health of millions of rural Americans.
In late June, the nonpartisan Congressional Budget Office (CBO) released its analysis of the BCRA, estimating that roughly 22 million Americans would lose their health insurance coverage if this bill becomes law.
The BCRA’s changes to the Medicaid program would cut federal support to the program by $772 billion over the next decade by ending the ACA’s Medicaid expansion and capping federal support for the remaining Medicaid program. This 10-year estimate may appear slightly better than the House-passed version’s cut of $834 billion, but the Senate version is in fact more extreme because it back-loads the most extreme cuts so that they will continue to grow after the 10-year period that the CBO analyzed.
Together, these changes would reduce overall Medicaid spending by more than 15 percent between 2017 and 2026. But even this large number understates the true magnitude of the caps because they grow more severe over time. By 2026, the spending cut grows to $158 billion, which is $8 billion larger than the House-passed version. That amount is about 26 percent less than what the CBO projects under current law. In later years, the cuts would continue to multiply and “enrollment in Medicaid would continue to fall.”
Other parts of the bill will increase premiums for those who purchase insurance through the individual market, hitting older Americans the hardest. Together, these changes would wreak havoc on all parts of the United States, but they would have a particularly devastating effect on rural communities.
First, Medicaid covers a greater share of children and adults in rural and small-town areas than in urban areas. In seven states—Alabama, Alaska, Arizona, Maine, Mississippi, Missouri, and South Carolina—seniors in these areas also rely on Medicaid more than their urban counterparts. As Medicaid cuts increase, they will have an outsized impact on rural Americans, who will lose access to affordable health care.
In most cases, Medicaid enrollees do not pay premiums and have either no out-of-pocket costs or are responsible for paying nominal amounts. Instead of this low-cost, comprehensive coverage, the Senate bill pushes millions of low-income Medicaid enrollees into the private insurance market. A 64-year-old individual with an income of $11,400, who would have qualified for Medicaid under the ACA, would have to pay $300 for her premium under the Seate bill, and her deductible would be more than half of her annual income. As the CBO noted, “Because of the expense for premiums and high deductibles, most … would not purchase insurance.”
Second, the Senate bill increases costs for individuals who currently purchase insurance through the ACA’s marketplaces. The Senate bill slashes funding for the tax credits that help low and moderate-income Americans afford their premiums. It also eliminates the ACA’s extra financial help that brings down out-of-pocket costs for lower income Americans. The bill also allows insurers to charge those nearing retirement five times more than people in their 20s. The CBO estimates that, on average, a 64-year-old with an income of $56,800 would pay $13,700 more just to keep the same plan.
Rural residents would pay even more. Private insurance costs are generally higher in rural areas, in large part because there are fewer people to spread costs between, which lowers insurers’ risk. In addition, rural residents are generally older and in poorer health than their urban counterparts. A 60-year-old in rural Maine with an income of $50,000, for example, would pay $15,990 more to keep the same plan. If that person chose a plan with cheaper premiums, she would still pay $11,930 more for far skimpier coverage. The CBO predicts that, after 2019:
… some sparsely populated areas might have no nongroup insurance offered because the reductions in subsidies would lead fewer people to decide to purchase insurance … Insurance covering certain services would become more expensive—in some cases, extremely expensive.
Third, these cuts will hasten the trend of rural hospital closures. In the past several years, the number of rural hospital closures has increased. As of 2015, 300 rural hospitals were on the verge of closing due to financial losses. Many of these hospitals faced financial hardship in large part because some states decided not to expand Medicaid under the ACA. Many rural hospitals in nonexpansion states bring in less money than they spend; their operating margins—which is a measure of profitability—averaged 0.2 percent.
Less than two years after the start of the ACA’s major coverage expansions, the percentage of rural hospitals at risk of closure had nearly doubled in states that did not expand Medicaid compared to expansion states. Unlike hospitals in states that expanded Medicaid, these institutions did not experience any decrease in uncompensated care costs for uninsured patients. Uncompensated care is care provided by the hospital for which no payment was received from either the patient or an insurer. In states that expanded Medicaid, the program now pays for the same care that would have been uncompensated before the ACA because millions of previously uninsured people are now covered by Medicaid.
In states that expanded Medicaid, the uninsured rate in rural areas has fallen by almost half; as a result, hospitals provide fewer free services as more people have insurance that will pay for their hospital care. But even with more insured patients, rural hospitals in expansion states still face difficulties. Regardless of state, rural hospitals are likely to be operating with very slim margins and have difficulty recruiting and retaining health care professionals and maintaining day-to-day operations.
Given the precarious finances of many rural hospitals, these providers may not be able to withstand even a small reduction in revenues, let alone the 26 percent cut in federal Medicaid spending they face under the Senate bill. On average, Medicaid makes up more than 10 percent of rural hospitals’ net revenues. In roughly 15 percent of rural hospitals, Medicaid payments are 20 percent of net revenues.
As Medicaid revenues continue to fall, the changes made by the Senate’s bill would lower gross revenues for the average rural hospital. For the average rural hospital, these cuts would lower gross revenues by 1.5 percent. For hospitals that rely more heavily on Medicaid payments, the reduction would be 3 percent. While these reductions may not sound large, they could be disastrous for hospitals already operating at the thinnest of margins. Given that many individuals will still need hospital care regardless of their ability to pay, it’s likely that hospitals would not experience commensurate reductions in operating costs.
These hospitals also generate economic activity in their communities. In many rural counties, the local hospital is the primary economic engine. More than 40 percent of rural counties rely on hospitals for more than 10 percent of their employment. Nationally, the health care and social services sectors employ 17 percent of all workers in rural counties. These jobs are also significantly higher paying than other jobs in the same community. When a rural hospital closes, the area’s per capita income decreases by about $1,000 a year.
Rural communities will bear the brunt of the BCRA’s cuts. The plan to repeal the ACA and limit federal support for Medicaid will raise costs and limit access to critical health care services. And hospital closures also have a ripple effect; the loss of higher-paying hospital-related jobs can devastate local rural economies. Lawmakers should be advancing proposals to infuse rural areas with more resources instead of shifting costs to rural residents and embracing draconian cuts to a program that acts as a lifeline for entire communities.
Maura Calsyn is the managing director of health policy at the Center for American Progress.