North Carolina poised to expand Medicaid

By Lauren Berryman / March 2, 2023

North Carolina is on the verge of becoming the latest state to expand Medicaid eligibility under the Affordable Care Act through a deal legislative leaders announced Thursday.

The Tar Heel State's hospital industry backs the expansion, which would cover an estimated 600,000 adults with incomes below 133% of the federal poverty level, or $19,391 a year for a single person. The federal government provides 90% of the funds for these Medicaid expansions and states are responsible for the remainder. The agreement unveiled Thursday includes an assessment on hospitals that would finance North Carolina's share. The measure also would relax the state's certificate of need law, enabling providers to expand services.

North Carolina providers and industry groups, along with low-income residents, have waited more than a decade for Medicaid expansion to be this close to fruition. North Carolina is one of 11 states that have not expanded Medicaid under the 2010 healthcare law. South Dakota was the most recent to adopt the policy when voters approved it at the ballot box in November.

North Carolina House of Representatives Speaker Tim Moore (R) and Senate President Pro Tempore Phil Berger (R) announced the agreement to advance Medicaid expansion, which Gov. Roy Cooper (D) has long supported, at a news conference Thursday. Both chambers passed Medicaid expansion bills last year but failed to reconcile their differences before the legislative session ended in July.

“What a huge announcement this is for North Carolina. What a huge policy direction this is that's going to provide help for so many in this state, but it's going to do it in a way that's fiscally responsible,” Moore said.

The state House swiftly and overwhelmingly passed Medicaid expansion legislation last month, shortly after the new session began. The state Senate will adapt the certificate of needs provisions from its prior bill to the new measure. That issue was a primary reason the North Carolina General Assembly failed to move forward on expansion last year but the two chambers are cooperating to resolve their disagreements, Moore said.

Support from General Assembly leaders, along with the legislature's Democrats and some of its Republicans, all but assures the Medicaid expansion bill will reach Cooper's desk. The state Senate will act first, followed by the lower chamber.

"An agreement by legislative leaders to expand Medicaid in North Carolina is a monumental step that will save lives and I commend the hard work that got us here," Cooper said in a news release Thursday. "Since we all agree this is the right thing to do, we should make it effective now to make sure we leverage the money that will save our rural hospitals and invest in mental health. I look forward to reviewing the details of the bill."

Medicaid expansion has enjoyed some level of bipartisan support in North Carolina for years, but some lawmakers remain opposed, mainly for fiscal reasons. Despite contrary evidence from other states, skeptics are concerned that costs will balloon over time. Moore directly addressed those concerns Thursday by asserting that Medicaid expansion would, at worst, have a neutral effect on the state's budget.

Time is of the essence, North Carolina Secretary of Health and Human Services Kody Kinsley said prior to Moore and Berger's announcement. Among those who would benefit are North Carolinians whose Medicaid benefits are at risk because the state will soon resume redeterminations of eligibility that were put on hold during the federal COVID-19 public health emergency, which expires May 11.

Beginning April 1, an estimated 300,000 North Carolinians are expected to lose Medicaid coverage or see their benefits reduced, according to the state Health and Human Services Department.

For some providers, though, Medicaid expansion may come too late. In January, for example, Greenville-based ECU Health announced plans to close five rural health clinics in the eastern region of the state.

“At a time when we need access to care more than ever in these parts of our state, especially when I think about mental health and the importance of primary care, they’re closing because just like any other business when three to four out of 10 people who walk through your front door don't have a way to pay, you can’t stay open,” Kinsley said.

The North Carolina Healthcare Association, which represents hospitals, endorsed the Moore-Berger agreement Thursday. "This legislation will go far to strengthen the health of people in our state and to support maintaining access to healthcare, especially in rural communities. We look forward to working with elected officials to support getting this historic legislation passed into law soon," CEO Steve Lawler said in a news release.

Stemming the tide of hospital closures

As in other states, concerns about financially strained hospitals shutting their doors have overcome fiscal and ideological objections to Medicaid expansion among a significant number of Republican legislators.

Six rural North Carolina hospitals have closed since other states began implementing Medicaid expansion in 2014, according to data from the Cecil G. Sheps Center for Health Services Research at the University of North Carolina at Chapel Hill. North Carolina ranks fifth nationwide in rural hospital closures since expansions took effect elsewhere, the UNC data show.

Financial factors play a predominant role in rural hospitals shuttering or cutting services, said George Pink, senior research fellow at the Sheps Center. Medicaid expansion could reduce providers' uncompensated care burden which, in turn, could increase cashflow to hospitals with higher proportions of Medicaid patients, he said.

“We had well over half of our hospitals with negative operating margins and the average operating margin for our hospitals was close to negative 3.7%,” Lawler said. Smaller, community hospitals comprise most of those struggling, he said.

This goes a long way toward explaining why the North Carolina hospital industry supports Medicaid expansion and are willing to cover the state's costs. Most states that expanded Medicaid financed it through general funds, but 11 before North Carolina assessed or increased taxes on providers to defray expenses, according a 2019 report from the Kaiser Family Foundation. The North Carolina Healthcare Association projects that hospitals will pay $550 million a year to fund Medicaid expansion.

Hospitals are betting that more patients with health coverage and fewer unpaid bills will more than make up for the new taxes they will owe. Generating more money would help the state’s hospitals, especially those in rural communities, vulnerable to closure, Lawler said in an interview prior to Moore and Berger's news conference. “We believe that the additional financial support that rural hospitals receive because these people now have coverage makes it at least a breakeven, if not some financial lift,” he said.

Hospitals in Medicaid expansion states have saved an average of $6.4 million annually on uncompensated care since states broadened eligibility, and safety-net hospitals have benefitted the most, according to a 2021 Urban Institute study published in Health Affairs.

A key component of North Carolina's Medicaid expansion plan is the federal Healthcare Access and Stabilization Program, known as HASP, that provides enhanced Medicaid reimbursements to financially struggling hospitals. States must opt into the program.

Together, Medicaid expansion and HASP would bring in $8 billion a year, Kinsley said. And the federal government is providing additional funding to states that implement expansions that would be worth up to $1.8 billion over two years to North Carolina, Kinsley said.

Providers expect benefits

More revenue could also help hospitals and other providers expand services, including maternity care and oncology.

If Medicaid were expanded, Four Oaks-based CommWell Health would invest in broadening its services, hiring primary care providers and expanding care coordination to address social determinants of health, Christopher Vann, the community health center's chief development officer, said before the deal announcement.

More patients seeking preventative care could drive down future spending, Dr. Lynne Fiscus, president and CEO of Chapel Hill-based UNC Physicians Network, said ahead of the legislative deal. "We'll be able to treat more illnesses early and treat more people identify and treat more chronic diseases before they get to the stage that they need emergency care or they need hospitalization," she said.

In addition, taking financial pressures off healthcare organizations allows more collaboration between community clinics and hospitals, Adam Searing, associate professor at the Georgetown University McCourt School of Public Policy’s Center for Children and Families, said before Moore and Berger's news conference.