Medicaid Subsidies 2-3-26

Cost shifting has not been entirely replaced by Medicaid subsidies in the U.S., but the Affordable Care Act (ACA) and its Medicaid expansions have significantly reduced the need for cost shifting in many states by expanding coverage and lowering uncompensated care. However, cost-shifting dynamics are re-emerging due to proposed federal cuts, the expiration of pandemic-era subsidies, and the remaining 10 states that have not adopted Medicaid expansion.  

Key Findings on the Relationship Between Cost Shifting and Medicaid

Medicaid Expansion Reduced Cost Shifting: In states that adopted Medicaid expansion, uncompensated care costs for hospitals dropped significantly (nearly 25% in some studies), as more patients gained coverage, reducing the "hidden tax" shifted to private insurance.

Expansion Limits Cost Shifting: The ACA provided subsidized marketplace plans and Medicaid, which together covered millions, easing the financial burden on hospitals, particularly in rural areas.

Proposed Cuts May Re-introduce Cost Shifting: Proposed 2025-2026 federal budget cuts to Medicaid threaten to shift costs back to states and providers. If Medicaid expansion is weakened, hospitals are projected to face a $14.3 billion increase in uncompensated care, which may lead to higher prices for private insurance (cost shifting).

Regional Disparities: In states that did not expand Medicaid (e.g., Texas, Florida), providers continue to rely on higher private payer rates to cover the uninsured.

Expiration of Subsidies: The expiration of enhanced ACA marketplace subsidies at the end of 2025 is expected to raise premiums and reduce coverage, likely increasing the uncompensated care burden on hospitals. 

Conclusion

While Medicaid expansion is highly effective at reducing the necessity for cost shifting, it is a policy, not a permanent replacement. The mechanism of cost shifting persists in non-expansion states and may return in expansion states if federal funding is reduced or if coverage gains are reversed. 

"Cost shifting"—the practice of charging private payers more to offset low public reimbursement—has not been replaced by Medicaid subsidies. In fact, current shifts in federal policy are expected to intensify the need for cost shifting in 2026. 

The Role of Medicaid Subsidies

Medicaid and ACA subsidies are intended to reduce "uncompensated care" (charity care) rather than replace the mechanism of cost shifting. 

Medicaid Expansion: By reducing the number of uninsured patients, expansion lowers hospital charity care costs. However, because Medicaid often pays less than the actual cost of care, high Medicaid volume can create new "shortfalls" that hospitals may still try to shift to private insurers.

Reduced Charity Care: All 13 states with charity care costs below 1.0% of operating expenses are Medicaid expansion states.

Contradicting Data: Some research suggests that when public payments drop, commercial rates actually follow them down rather than rising to compensate, calling the extent of "cost shifting" into question. 

Recent Policy Changes (2025–2026)

The healthcare landscape is currently moving toward increased cost shifting due to the expiration of federal supports: 

Expiration of Enhanced Subsidies: Enhanced ACA premium subsidies expired at the end of 2025. Millions of Americans now face premium increases of 25%–30%, and many may become uninsured, increasing the burden of uncompensated care on hospitals once again.

Medicaid "Unwinding": As pandemic-era continuous enrollment ended, millions were disenrolled from Medicaid. This shift back to uninsured status is a primary driver of projected premium increases for those with private insurance.

Federal Funding Cuts: Legislation passed in late 2025 (such as the One Big Beautiful Bill Act) includes substantial cuts to Medicaid funding, which experts warn will shift costs directly back to states and providers. 

Current Outlook

Rather than being replaced, cost shifting remains a central point of contention. 

Private Payer Impact: Insurance premiums for 2026 are expected to rise significantly due to "cost-shifting associated with the dramatic increase in the uninsured population".

State Burden: Federal cuts are forcing states to consider reducing provider reimbursement rates, which typically triggers more aggressive cost shifting by hospitals to maintain their margins. 

https://www.google.com/search?q=has+cost+shifting+been+replaced+by+medicaid+subsidies+in+us+google

Norb Leahy, Dunwoody GA Tea Party Leader