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Deep Cuts to LSU Hospitals and Rejection of Medicaid Expansion Would be a Double Whammy

Posted on July 19, 2012

By Steve Spires

Two recent policy decisions could combine to have disastrous consequences for the uninsured in Louisiana. First, Gov. Bobby Jindal announced that Louisiana would not participate in the upcoming expansion of Medicaid to cover low-income working adults, a central part of the health care reform law that was upheld last month by the Supreme Court. That was followed by the Department of Health and Hospitals’ decision to cut 25 percent of the budget for the LSU health system—a statewide network of 10 hospitals and dozens of clinics that provide a large share of health care for the uninsured.

The latest cuts mean Louisiana’s unique statewide network of charity hospitals will have been cut by 36 percent since 2008-09. And the rejection of the Medicaid expansion means there would be no viable plan to care for the low-income Louisianans who rely on these hospitals – and affiliated clinics – for basic health-care needs.

Low Medicaid Eligibility Currently Leaves Many Working Louisianans Uninsured

Approximately 750,000 Louisiana residents lack health insurance, including 1 in 4 non-elderly adults. One reason that Louisiana has so many uninsured residents is that the state has one of the highest rates of poverty in the country, yet some of the strictest Medicaid eligibility requirements for adults. Nationally, the median income limit for working adults to qualify for Medicaid is around 64 percent of the federal poverty line, or about $12,200 for a family of three. But in Louisiana, adults have to make less than 15 percent of the poverty line—$2,860 a year for a family of three—and only parents of minor children are eligible. Adults without children cannot qualify for Medicaid regardless of income.

By contrast, Louisiana is a national leader when it comes to covering Medicaid-eligible children, with Medicaid available to kids in families with incomes up to twice the poverty rate—or $38,200 for a family of three. The expansion in Medicaid eligibility for children in the late 1990s is the primary reason that only 5 percent of Louisiana kids are uninsured today, less than the a national average of 8 percent.

LSU Hospitals Plays Important Role in Louisiana’s Health Care System

To compensate for the fact that Medicaid coverage is so restricted—leaving a large number of low-income, uninsured adults—Louisiana has historically supported a public health system to provide care to the uninsured on a free or reduced-cost basis. Since the late 1990s this safety-net health system has been managed by Louisiana State University, which also provides education and training for the next generation of Louisiana’s doctors and nurses.

In the 2010- 2011 budget year, LSU’s hospitals and clinics managed 64,500 admissions, nearly 1.6 million outpatient visits, and more than 400,000 emergency room encounters on an overall budget of $1.37 billion. Altogether, LSU health served more than 530,000 unique patients that year—nearly 12 percent of the entire state population—a majority of who lacked health insurance.

The LSU health system has done this despite repeated rounds of budget cuts over the last few years, resulting in fewer staffed beds, clinic closures and staff layoffs. Between 2009 and 2011, LSU health laid-off nearly 1,800 employees and reduced its number of staffed beds by 15 percent—not including another round of budget cuts earlier this year due to the FY12 mid-year shortfall. This not only threatens access for the uninsured, but increases pressure on private health-care providers as uninsured patients must seek care elsewhere.

Recently Announced Medicaid Cuts Will Harm Patients, LSU Hospitals and Other Health Care Providers

Responding to a decrease in federal aid to Louisiana’s Medicaid program, the Jindal administration announced plans to cut funding for LSU health by nearly $330 million, which comes to almost one-fourth of the system’s total budget. The amount set aside for treating the uninsured was cut roughly in half.

Despite the administration’s insistence that the cuts will encourage “modernization” and “efficiencies,” it’s hard to see how cuts of this magnitude can be made without hospital closures. With the latest cuts, the LSU health system’s budget has now been slashed by 36 percent (adjusted for inflation) since 2008-09.

To put things in perspective, the $330 million cut is slightly less than the combined  budgets of Lallie Kemp Regional Medical Center in Independence, Leonard J. Chabert Medical Center in Houma, University Medical Center in Lafayette, WO Moss Regional Medical Center in Lake Charles, and Washington-St Tammany Medical Center in Bogalusa.

Clearly, a budget cut that is equivalent to shutting down five of Louisiana’s 10 charity hospitals will have a negative impact on access to services. Further complicating the cuts is the need for LSU to maintain adequate facilities for medical students.

While the decrease in federal aid was not the fault of state policymakers, placing the majority of the cuts on the backs of LSU hospitals—and by extension, the uninsured—will jeopardize the ability of the system to achieve its core mission, and is likely to cause significant harm.

Expanding Medicaid Would Benefit Uninsured Louisianans and Health Care Providers

The outlook for low-income, uninsured Louisianans would improve substantially beginning in 2014 if Louisiana were to expand Medicaid eligibility for adults up to 133 percent of poverty—an income of about $14,850 a year for an individual and $25,390 for a family of three—as called for by the health care reform law. The expansion would provide coverage for as many as 400,000 Louisianans, mostly the working poor, who currently have none. Research has found that Medicaid has measurable positive effects on health and well-being compared to being uninsured.

Health care providers would also see more financial stability due to the influx of billions in new federal dollars. As the uninsured gain Medicaid coverage, the burden of “uncompensated care” costs on providers will be reduced.  The injection of new federal dollars will also be a boost to Louisiana’s economy. The money will help both directly – by creating jobs in the health care sector – and indirectly, by supporting jobs that provide goods and services to the health-care industry. Finally, a healthier workforce also means a more productive workforce.

Unfortunately, Gov. Jindal recently announced that Louisiana will reject the Medicaid expansion, despite the favorable financial terms being offered to states. The expansion will be fully funded by the federal government for the first three years, with the state chipping in slightly after that, but never having to pay for more than 10 percent of the expansion beginning in 2020 and continuing on a permanent basis. Because of the generous federal financing, researchers at the Urban Institute have estimated that Louisiana’s state spending on Medicaid would be only 1.7 to 2.8 percent higher between 2014 and 2019 as it would have been without the expansion.

Clearly, expanding Medicaid will not only benefit the uninsured working poor, but is a good fiscal deal for health care providers and the state budget.

Conclusion

The next move now belongs to the Legislature. State law says no LSU hospital or emergency room can be closed without the Legislature’s consent. Lawmakers also have to sign off any time a hospital reduces services by more than 35 percent. It appears almost certain that the latest cuts will trigger this requirement—giving the legislature some input into how to handle these cuts in a way that protects critical services and the hospital safety net, potentially through supporting the use of new revenues.

Looking ahead, the Legislature can strengthen health coverage and vastly reduce the number of uninsured Louisianans by approving expansions in Medicaid eligibility for adults, as it did for children in the late 1990s under much less favorable financial terms.

Without the Medicaid expansion, the working poor would have no other option to gain health coverage and would have to continue to be reliant on charity care. But with deep cuts to the LSU health system, access to services will deteriorate and stress on other health care providers will increase. Ultimately, lack of Medicaid coverage and reduced access could mean worse health outcomes for uninsured Louisianans.

Adding to the urgency is that without new revenue, more Medicaid cuts will be required later in this fiscal year, as the Jindal administration has only made two-thirds of the cuts required and delayed action on the remainder. The risk of more cuts emphasizes the importance of the Donahue Commission that has been set up to scrutinize Louisiana’s $4.8 billion labyrinth of tax exemptions, credits, and rebates. The Commission’s work could help Louisiana achieve a simpler and fairer tax code, while also raising the revenue needed to prevent these continuous cuts to higher education and health care.

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