The Murray-Ryan deal includes a change to an obscure Medicaid policy called disproportionate share hospital (DSH) payments that will make it much more difficult for supporters of the Medicaid expansion to convince states to accept it anytime soon.
Here's how DSH payments work:
Every years, hospitals treat uninsured patients who lack the means to pay them back. To offset these costs, Medicaid sends DSH payments to hospitals that face a higher rate of uncompensated care. In 2011, DSH payments were $11.3 billion. This isn't small change.
The Affordable Care Act gradually phases these payments out so that they are almost gone by 2020. The rationale for this is that most people would have insurance under the new law so almost no one would be unable to pay their hospital bills. This would be particularly true for low-income Americans, most of whom would be covered by the Medicaid expansion.
That was before the Supreme Court ruling allowed states to opt out of the expansion. Right now, only 25 states and the District of Columbia are expanding Medicaid. Of the 25 that have not yet expanded, 23 have Republican governors (two are in the process of expanding).
After the ruling, many Obamacare supporters felt confident that red state governors would expand Medicaid, because hospitals would pressure them to do so.
In states that didn't expand their Medicaid programs, hospitals would still not receive compensation from many low-income, uninsured patients, but now they would also not receive DSH payments to offset those costs. In states that chose to accept the expansion, Medicaid would cover those patients and reimburse the hospital. This gave hospitals a major incentive to lobby state governments to take part in the expansion.
At least, that was the case before the Murray-Ryan budget, but the deal delays the reduction in DSH payments for two years.
Part of the reason for that is the horrible launch of the federal exchange website and the resulting slower-than-expected rate of enrollments. Fewer enrollments means fewer people covered and higher rates of uncompensated care for hospitals.
But the main driver is the refusal of many states to expand Medicaid, which leaves a significant number of low-income Americans uninsured and unable to cover their health care costs. The budget deal ensures that hospitals in those states continue to receive compensation for those costs.
The political pressure from hospitals was one of the strongest forces pushing states to take part in the expansion. Without it, Republican governors will find it much easier to reject it. This is yet another blow to advocates of the Medicaid expansion and a boon for Republicans who are against it.