Moody’s: Refusing Medicaid Expansion Will ‘Put Pressure’ On State And Hospital Credit Ratings

Investor services and credit rating agency Moody’s has some news for GOP governors hesitant to expand their state Medicaid programs under Obamacare: either hospitals in states refusing the expansion, or the states themselves, will feel pressure on their credit ratings due to higher uncompensated care costs and cash-strapped budgets.

In a press release regarding a new Moody’s report on Medicaid expansion, the agency explains that refusing the expansion would by necessity force one of these institutions or the other to lose out — since the resulting increase in the ranks of uninsured, low-income Americans would put fiscal strains on safety net hospitals or the state at large. As Nicole Johnson, a Senior Vice President at Moody’s, explained, “States that opt out of Medicaid expansion will have to choose whether to compensate for the shortfalls with their own funds or leave hospitals to absorb the costs, which will increase rating pressure on the hospitals. States that choose to fund uncompensated care costs themselves could face budgetary strain.”

As the press release notes, refusing to expand Medicaid would significantly increase uncompensated care costs for hospitals that cater to low-income Americans because Obamacare institutes deep cuts to reimbursements made to these “disproportionate share hospitals,” or DSHs. This is because lawmakers originally expected the expansion to be mandatory for all states, thus lowering the need for DSH payments — but the Supreme Court ruled that provision to be optional, instead.

Moody’s has consistently argued that Obamacare is a good deal for hospitals and states. In fact, before the Supreme Court had issued its ruling on Obamacare, Moody’s released a statement saying that “the best possible outcome from the Supreme Court would be a full confirmation of the law” because that would be “credit neutral.” They also warned that possible hits to credit ratings would not just be limited to safety net hospitals, because, “With fewer people covered by healthcare insurance, for-profit hospitals will face increased bad-debt exposure and reduced reimbursement rates.”

Now, in their latest report, the agency asserts that the negative effects of refusing to expand Medicaid “will be greatest in states that opt out of Medicaid expansion, but have a relatively high proportion of uninsured residents.” That describes many states led by GOP governors, who have recently been coming to embrace the expansion after intense lobbying by advocates for the poor and hospital associations that are concerned about these very uncompensated care costs. But many of these GOP governors face an uphill battle against members of their own party when it comes to expanding Medicaid.