Major Challenges Facing Medicaid

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Major Challenges Facing Medicaid


Medicaid is a federal and state health program that caters for health care costs for people with low incomes and disabilities. As of 2017, the Medicaid program was providing health insurance to 74 million Americans. In 2017, health care providers experienced shrinking Medicaid reimbursement rates. According to a survey by Deloitte, Medicaid funding cuts were due to proposed Affordable Care Act repeal bills. The passing of the bill would have resulted in insufficient state funding for the program. Without enough funding, states would lower Medicaid payment rates, reduce services covered and in some severe cases dropping enrolment into the program. This would increase the number of uninsured people and hurt health care provider’s revenue sources. With Medicaid covering health care costs for most low income earners and disabled people, consumers are less likely to seek preventive or primary care without sufficient funding of the program.

Challenges facing Medicaid

The major challenges facing Medicaid as a result of funding cuts is the increase in uncompensated health care costs. Uncompensated care means the hospitals are likely to provide care without getting reimbursed. This arises when people do not have insurance and cannot afford to pay for care from their pockets. Reduced financing to the Medicaid program will leave a host of citizens from low income families without any health cover. Hospitals and care providers will experience a surge in uncompensated care. In 2014, hospitals in 19 states implemented Medicaid expansion under the Affordable Care Act. Hospitals that elected to implement this expansion reported a decrease in uncompensated care costs(Dranove et al., 2016). Despite the increased coverage, hospitals still incur significant uncompensated care costs according to American Hospital Association reports. Federal and state governments are responsible for financing health costs for the uninsured, but health care providers still incur substantial costs. Medicaid funding cuts will increase this burden already facing many providers.

Medicaid reimbursement rates have been found to be lower than reimbursement rates under private insurance. Under the Affordable Care Act, Medicaid reimbursement rates were significantly reduced. This results in Medicaid reimbursement falling below the actual costs of care. Some studies have found that Medicaid reimbursement to be about 45% less than what the providers get from private payers(LaPointe, 2017).

Medicaid funding cuts are also likely to affect the number of people who will qualify for the program. Many citizens with low incomes are likely to be left with no health cover. The eligibility criteria for the program was reviewed when the Affordable Care Act was enacted. Without sufficient funding, some states may elect to change the eligibility rules which will leave many citizens without any form of health cover(LaPointe, 2017). With no coverage, majority of people will forego preventive and primary care. This poses a challenge to the health status of the community. This will also affect revenues for providers.

Course of Action

Health care providers and hospitals should move forward with value-based purchasing contracts and strategies. Providers should be ready to face the political uncertainties facing health reforms. Each government has its own agenda to address the health crisis in the country. To address this uncertainty, providers should adopt value-based purchasing contracts and address health care cost reductions. Under this strategy, health care providers are compensated for the quality of care they provide. Providers will receive incentives based on performance and patient experience measures to reward the best-performing providers(Garg et al., 2019). With better disease control and good quality of care, the providers are likely to address the rising costs of health care. Providers will also pay for drugs based on the performance. This will reduce the cost of medication.

With the expected Medicaid reimbursement cuts, providers should focus on reducing inefficiency. Payers are pushing providers to increase the value of care while reimbursement is reducing. Thus, the providers will be operating on tight margins. They should address how to deliver care to patients more cost effectively. Data and technology can be effective tools to address back-office inefficiencies to reduce unnecessary costs.

Providers should also consider diversifying or expanding to other states and geographical locations to address Medicaid funding structure issues. Each state has its own reimbursement structures which means that there exists differences in reimbursement rates. Expanding to these locations, providers will be able to get higher compensation for the services. States with less strict eligibility rules provide an opportunity for providers to invest in. This is because many people are covered, and are likely to access health care services. People will not be afraid to go for preventive and primary care, which improves revenues stream for the providers.

Health care providers should also consider shifting from inpatient to outpatient care. The growth in the number of uninsured citizens and Medicaid funding cuts will increase the cost of uncompensated care. Hospitals and health care providers, should implement strategies to triage patients to the most appropriate care settings. Providers should only consider urgent care versus emergency department care setting when it is absolutely necessary.




Dranove, D., Garthwaite, C., &Ody, C. (2016). Uncompensated Care Decreased At Hospitals In Medicaid Expansion States But Not At Hospitals In Nonexpansion States. Health Affairs35(8), 1471-1479.

Garg, A., Homer, C., &Dworkin, P. (2019). Addressing Social Determinants of Health: Challenges and Opportunities in a Value-Based Model. Pediatrics143(4), e20182355.

LaPointe, J. (2017). Medicaid Reimbursement Woes Key Concern for Healthcare CEOs. Retrieved 16 September 2021, from