The super wonky reason states may join the Medicaid expansion

DSH payments have noting to do with actual dishes. But they are really important in Medicaid policy (David Masters | Flickr)

Are you ready...to wonk? Good, because we're  treading into an obscure, acronym-laden area of Medicaid policy that does not usually get much attention, but plays a huge role in states' deliberations over whether to join the health law's Medicaid expansion.

It all centers on something called DSH payments (pronounced "dish" payments, in health-wonk parlance). That stands for Disproportionate Share Payments, extra money that Medicaid sends to hospitals that provide a higher level of uncompensated care. Those payments, which totaled $11.3 billion in 2011, are  meant to offset the bills of the uninsured.

The Affordable Care Act phases out these payments. If most Americans are covered under the Affordable Care Act, after all, hospitals would presumably see a reduction in unpaid bills. They wouldn't need the supplemental payments anymore.

That was the thinking before the Supreme Court decision, at least. If a state opts out of the Medicaid expansion and does not extend coverage to those living below the poverty line, the math changes. The unpaid bills do not disappear, but the DSH dollars do. Barring an act of Congress, those supplemental funds will be largely phased out by 2020.

That's a big deal for hospitals, who already spend about $39.3 billion a year on uncompensated care, which makes up 5.8 percent of all expenses. Add on another $11 billion and hospitals would find themselves spending 27 percent more covering unpaid bills. It especially matters in states with more uninsured residents. In Texas, for example, the hospitals received $957 million in DSH payments last year.

That money goes away, regardless of whether Texas decides to join the Medicaid expansion or not. Those dollars could be replaced with new Medicaid payments - or, if not, it will be about a $1 billion in new bills for Texas hospitals to foot.

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