

Medicaid expansion seems to be playing a major role in the reduction of hospitals' uncompensated care. (Noah Berger/Bloomberg News)

The Obama administration is projecting that hospitals will face $5.7 billion less in uncompensated care costs than they otherwise would have in the first full year of the Affordable Care Act's coverage expansion.

Millions more people with health insurance means fewer uninsured patients are coming through hospitals' doors. That means fewer costs from bad debt or charity care from people unable to pay their bills, which amounted to about $50 billion for the nation's hospitals in 2012.

Five years ago, when advocates were still trying to build support for the bill that became the ACA, they saw the potential for reducing the costs of uncompensated care as a big selling point. That's because those costs were already getting passed along to the tabs of people who could pay. This "hidden tax" amounted to about $1,000 for family coverage, according to a 2009 analysis from Families USA.

"When there's uncompensated care, it gets fed back into premiums," Council of Economic Advisers chairman Jason Furman said Wednesday in a briefing with reporters. However, officials said they didn't specifically calculate how the lower costs from uncompensated care would show up in the premiums people pay for coverage.

The reduction in uncompensated care is much greater in states that expanded their Medicaid programs under the Affordable Care Act, according to the new report. About three-quarters of the reduction in uncompensated care, or $4.2 billion, will be seen in about half the states that expanded their Medicaid programs under the federal health care law.

The new uncompensated care figure is based on a previous Department of Health and Human Services projection that an additional 10.3 million people gained insurance in 2014 — though, as previously explained, it could be another year before we have the most reliable numbers. For the new report, HHS also reviewed publicly reported data from the five largest for-profit hospital groups and surveys from major hospital associations.

As the following chart shows, the major hospital systems and associations reported major reductions in uninsured admissions when comparing the first quarters of 2013 and 2014. The drop was more pronounced in states with expanded Medicaid programs.

Meanwhile, the administration said the Medicaid expansion seems to be driving an increase in hospital volume. Hospitals in expansion states saw the volume of Medicaid patients increase between 4 percent and 31 percent between the first quarters of 2013 and 2014, but HHS said it didn't find evidence of an increase in non-expansion states.

The administration also cites some evidence that these trends are playing out in rural hospitals, which have especially struggled to keep their doors open in recent years. Financial pressures, including some introduced by reimbursement reforms under the ACA, have forced two dozen rural hospitals to close since January 2013, according to a Reuters report earlier this month.

HHS Secretary Sylvia Mathews Burwell said the survival of rural hospitals is an issue she is "acutely focused on."

"I'm from rural America, so it's a question that I will consistently ask," she said.

Uncompensated care levels are especially important as the administration looks to ratchet down special payments to hospitals that serve a high proportion of uninsured patients. The cuts are required by the ACA, but the administration says it needs more detailed data about how the reduction in uninsured is playing out at local hospitals around the country.