Medicaid disenrollments to reduce hospital revenue by $25B

Hospitals are slated to lose up to $25 billion in a single year as Medicaid disenrollments materialize under President Donald Trump's sweeping spending law, otherwise known as the One Big Beautiful Bill Act.

The latest estimates from the Congressional Budget Office (CBO) show 10 million additional people losing health insurance coverage by 2034 under the law, which will alter key public insurance programs, including Medicare, Medicaid and the Health Insurance Marketplaces. However, Medicaid policies will produce the most significant impact on the U.S. uninsured rate over the next decade, with CBO estimating 7.5 million people losing coverage through Medicaid reforms.

Healthcare technology company, Kodiak Solutions, modeled how this loss of Medicaid coverage across millions of people would affect hospital revenue, with the average hospital collecting about 21% of its gross charges from all payers. The collection rate for Medicaid was 15% and 6% for self-pay.

Using Kodiak data from 2,100 hospitals and 300,000 physicians, the analysis revealed a more than 71% drop in net income for the average hospital in a worst-case scenario in which there is 20% Medicaid disenrollment. This hospital would also face a 70% decline in operating profit margin.

In other words, the operating profit margin could decline from about 2% to just 0.6% following large-scale Medicaid disenrollments.

This worst-case scenario isn't too far off, Kodiak pointed out. The company cited an August Fitch Ratings report in which the median operating profit margin for nonprofit hospitals last year was just 1.1%. Most hospitals represented in the analysis' data are nonprofits.

Overall, the average hospital would also lose between 0.4% to 1.4% of its annual net revenue, or $1 million to $4 million, Kodiak reported. Collectively, U.S. hospitals would lose up to $25 billion in net revenue in a single year alone.

The analysis assumed that patients losing Medicaid coverage under the law would become self-pay patients before finding alternative coverage from another source. Some people losing Medicaid may be eligible for another source of coverage; however, the CBO anticipates few of them to have access to employer-sponsored insurance, and no one will be eligible for Marketplace premium tax credits since the law makes those who lose or are denied Medicaid coverage ineligible for the credits, KFF reports.

"The numbers are simply jaw-dropping for health system finance leaders trying to plan for the future and ensure their hospitals and medical practices can continue to serve their communities," Matt Szaflarski, vice president of revenue cycle intelligence for Kodiak Solutions, said in a statement. "Hospital leaders need to start making changes today to prepare for the potential impact of these changes."

Jacqueline LaPointe is a graduate of Brandeis University and King's College London. She has been writing about healthcare finance and revenue cycle management since 2016.