HCA 320 Module 4: sample paper, in real form

Medicaid Expansion in a Composite Non-Expansion State: The Coverage Gap, the Financing Mechanism, and Who Bears the Cost

[Author Name]

Health Care Administration Program, Aspen University

HCA 320 Healthcare Policy and Economics

Module 4 Assignment

[Faculty Name]

August 11, 2026

Kestrel is a composite state written as a model document. No real state, hospital or resident is described.

The Coverage Problem in Heads and Dollars

Kestrel is a composite state of 5.1 million people that has not adopted the Affordable Care Act Medicaid expansion. Its Medicaid program covers parents up to 26 percent of the federal poverty level and covers childless adults not at all, while premium tax credits in the marketplace begin at 100 percent of that level. The result is a band of income that qualifies for nothing. Against the 2025 guideline of $15,650 for a single-person household (U.S. Department of Health and Human Services, 2025), an uninsured line cook earning $9,000 a year sits at 58 percent of poverty: too well paid for Kestrel Medicaid, too poorly paid for a subsidy. An estimated 128,400 adults occupy that band, part of the roughly 1.5 million counted nationally across the states that have not expanded (KFF, 2025).

The gap is already expensive. It is simply paid for somewhere other than a budget line. Kestrel hospitals reported $1.42 billion in uncompensated care in 2024, equal to 4.9 percent of statewide net patient revenue, and the nine rural hospitals in the eastern counties carried a median uncompensated care share of 11.2 percent against a median operating margin of negative 1.4 percent. Two of those hospitals closed obstetric services in the last three years. On the household side, most adults in the gap are working: food service, residential construction, home care and seasonal agriculture, in jobs where an employer offer is uncommon. Their medical debt does not disappear when a bill goes unpaid. It moves to collections, to credit files, and back to the emergency department as care that waited.

Scale sets the boundary of any realistic recommendation. National health spending reached $4.9 trillion in 2023, or 17.6 percent of gross domestic product (Centers for Medicare and Medicaid Services, 2024), and the average annual premium for employer family coverage reached $25,572 in 2024, of which workers contributed $6,296 (KFF, 2024). A worker earning $9,000 a year cannot buy into a market whose family product costs nearly three times that income, and no plausible amount of price shopping changes the arithmetic. The policy question in Kestrel is therefore not whether the gap population will be subsidized, but through which mechanism and on whose books the subsidy appears.

Why the Market Leaves the Gap Open

Insurance is bought when its expected value exceeds its price, and for this income band the price is disqualifying. The unsubsidized benchmark silver premium for a 40-year-old in Kestrel runs about $480 a month, or $5,760 a year, which is 64 percent of a $9,000 income before a single deductible dollar. Demand at that price sits near zero, and the people who would still buy are the ones who already know they need care. That is adverse selection working exactly as theory predicts: the pool that forms at an unsubsidized price is sicker than average, the premium rises to match it, and the healthier remainder leaves. An individual market cannot reach this band on its own, not because regulation has failed, but because price and income do not meet.

The care those adults do receive is financed by cross-subsidy rather than by nothing. Hospitals recover part of their uncompensated care through disproportionate share payments funded with federal and state dollars, and part through the prices they negotiate with commercial insurers, which reach households as premium growth and reach workers as wages that did not rise. That is the political economy of the present arrangement: the money is already being spent, but it is spent with no eligibility rules, no per-enrollee price, no primary care attached and no line in any appropriation debate. A cost hidden inside a premium generates no vote. Naming where that cost currently lands is the first obligation of a policy analysis, because the honest comparison is never expansion against zero.

The evidence also limits what expansion can be promised to deliver. The Oregon Health Insurance Experiment, which used a lottery to create a randomized comparison, found that Medicaid coverage increased use of health care services, sharply reduced catastrophic out-of-pocket spending and lowered rates of depression, while two-year measures of blood pressure, cholesterol and glycated hemoglobin did not improve at a statistically detectable level (Baicker et al., 2013). A recommendation resting on measurable population health gain within a single term of office overstates that evidence. The defensible case is financial protection, a regular source of care, and moving an existing cost onto a budget where it can be seen and managed.

The Mechanism and Its Incidence: Who Actually Pays

The mechanism recommended here is adoption of the expansion to 138 percent of the federal poverty level, with the state share financed by a broad-based hospital tax rather than from the general fund. The arithmetic is stated so it can be checked. At an assumed per-enrollee cost of $6,800 a year, covering 128,400 adults costs about $873 million annually. The federal government pays 90 percent under the expansion match, or $786 million, leaving a state share near $87 million. A uniform tax of 3.4 percent of net patient revenue on hospitals above a $50 million revenue threshold raises an estimated $95 million, which covers the match with $8 million left for eligibility administration. The rate stays under the 6 percent of net patient revenue limit federal rules place on provider taxes and applies uniformly rather than returning each dollar to its payer (Medicaid and CHIP Payment and Access Commission, 2024).

Incidence decides whether the recommendation is honest. Federal taxpayers carry 90 percent of program cost, and the temporary five percentage point increase in the regular federal match available to newly expanding states adds an estimated $210 million over two years, enough to build eligibility systems without a general fund appropriation. Hospitals carry the state share, and for most of them it is a good trade: an estimated $310 million of uncompensated care converts to paid claims against $95 million in tax. The trade is not uniform. Specialty and suburban hospitals that treat few uninsured patients pay more than they save, and part of what they pay will surface in commercial prices, which returns to insured households as premium growth. Enrollees pay little by statute. The state carries the political risk that a future Congress reduces the 90 percent match, so the enabling law should carry a trigger that reopens the program if the federal share falls.

Judging the decision requires measures set before the vote rather than after it. Over three years the analysis would track the adult uninsured rate, with a target of moving from 14.8 percent to below 9 percent; enrollment against the 128,400 adults identified as eligible; uncompensated care as a share of net patient revenue statewide and in the nine rural hospitals; the operating margins of those hospitals; and the volume of medical debt in collections. One methodological caution belongs in the recommendation itself. States that expanded differ from states that did not in economy, politics and baseline health, so a simple before-and-after comparison invites a false claim of causation, and a defensible evaluation would use a synthetic control or a border-county design.

References

Baicker, K., Taubman, S. L., Allen, H. L., Bernstein, M., Gruber, J. H., Newhouse, J. P., Schneider, E. C., Wright, B. J., Zaslavsky, A. M., & Finkelstein, A. N. (2013). The Oregon experiment: Effects of Medicaid on clinical outcomes. New England Journal of Medicine, 368(18), 1713-1722.

Centers for Medicare & Medicaid Services. (2024). National health expenditure data: Historical. U.S. Department of Health and Human Services. https://www.cms.gov/data-research/statistics-trends-and-reports/national-health-expenditure-data

KFF. (2024). 2024 employer health benefits survey. https://www.kff.org/health-costs/report/2024-employer-health-benefits-survey/

KFF. (2025). The coverage gap: Uninsured poor adults in states that do not expand Medicaid. https://www.kff.org/medicaid/issue-brief/the-coverage-gap-uninsured-poor-adults-in-states-that-do-not-expand-medicaid/

Medicaid and CHIP Payment and Access Commission. (2024). Provider taxes. https://www.macpac.gov/subtopic/provider-taxes/

U.S. Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation. (2025). Poverty guidelines. https://aspe.hhs.gov/poverty-guidelines