«Financial Impacts in US» - Great Essay Sample

«Financial Impacts in US»


Financial impact of Medicaid rates on a health service organization

Executive summary

Medicaid, under the Patients Protection and Affordable Care Act (ACA), requires the formulation of the process in a way that includes and covers the low income earners and the elderly of the U.S society. The formulation of this act was that it runs constantly for a period of two years from its conception after which the rates would slowly subside (Witt, 2002). However, some states in the U.S were against this policy and so the high court of the United States of America made a ruling that the policy be left in the constitution but be optional, such that those states that disapproved of it were not to be forced to pay the taxes and would not enjoy its benefits.

The states that would deem it a good health policy would therefore see an increase in the health taxation for its citizens, depending on their age and occupation; a move that would have an increased number of citizens insured and accessing uncharged medical services in all the approved health organizations.


Medical institution is a vital sector of any country’s economy. It is said that a healthy nation is a working nation, meaning that for any state to be productive, the state government needs to enact proper laws that govern the health sector to make sure that its citizens are healthy and strong. Medicaid plays an important role in the government of U.S in its health care delivery system. This program accounts for close to a sixth of the total health care spending; representing the source of revenue for majority of the states in the U.S. which they use to finance their health and medical coverage. This study therefore aims at explaining the effect financial gain and decrease will have on Medicaid and subsequently on the health service providers. It also extends on a broader scale to touch on issues related to health care services and how the Medicaid system affects them, taking into account factors such the effects of expansion of the program, the estimated savings on the state’s budget as a result of this expansion and the impact of the now new federal spending on the tax revenue collection and employment.

The effects of expansion of Medicaid rates to health organizations

In this section, the study involves the potential new costs that are associated with the increase of this medical coverage, dividing it into two parts namely;

      i.            The part of the population that was not before eligible to the coverage

      ii.            Those who were eligible but had not registered before

The part of the population that was not before eligible to the coverage

There has been an agreement among experts that the introduction of Medicaid would generate a form of welcome matt to those people who were before not eligible to the coverage (Crispin, 2006). This means that more people, like the aged in the society, would now be paying health tax that would subsequently be used in the health facilities. More insurance coverage packs will be now available to this previously aligned group of persons and they will not receive the same matching rates, as these rates will be charged as per their income level, occupation and age.

The per amount rates that these new eligible payees will be expected to pay for the health services would be calculated from case load projections of their monthly income offered by the state officials (Deller, 2003). This value would then be adjusted yearly to fit the enrolee. The health sectors can therefore be able to utilize their potential to the maximum as patients would be able to access public hospitals and services without discrimination on their financial status. However, in some parts of the state, the health organizations will be over populated as the previous health regulation policy was to control the number of patients accessing their services. They will therefore need to expand and offer more specialized services to their patients, owing to limitation factors such as availability of land. The table below shows the rate of expected new enrolled persons to the programme in the period of 2014 and 2020 (Perryman Group 2003).

Those who were eligible but had not registered before

There is that group of individuals who were previously eligible for public health care services but chose not to due to their personal reasons. The introduction of Medicaid, as it is stated in the constitution, will compile all eligible and working citizens to pay through the health tax system thus forcing them to access the government offered medical care. With these financial obligations, the state would be able to collect more revenue to be used in the health sectors thus improving the state of the health organizations, approximately 3.9% of the total revenue collected (Moore, 2002). This would amount to about $ 332,855,937 in the annual tax collection as indicated in the chart below. In this case, unlike the above, the hospitals conditions will need to be improved in order to accommodate this new type of enrolee.

Estimated savings on the state’s budget following the introduction of Medicaid program 

One of the advantages of Medicaid adoption is that the state gets a noticeable relief in the revenue allocation process as there will be more tax collected from the public that will be channelled into the health sector (Desai, 2003). The Health Service Act states that each hospital will receive a specified fixed payment for their operational use from the federal government and in return offer free services to its patients. By doing this, previous money allocated to specialized services such as treatment of terminal diseases like cancer and TB will now be channelled to other sectors of the economy resulting to a cumulative shift of state spending on the non-insured as shown below;

General savings on funds for the non-insured with the introduction of Medicaid in million dollars

2014 2015 2016 2017 2018 2019 2020 TOTAL
Non-Medicaid substance abuse 4 8 8 8 8 8 8 52
Community mental health 11 22 23 23 24 24 25 152
Total savings 15 30 31 32 33 33 33 205

The sectors that were allocated these funds included Chemical Dependency Departments and Programs which was previously allocated a 2% of the total health revenue tax collected. This figure had been on a constant increase due to the increased number of terminal illness patients. Medicaid program incorporated this sector therefore it no longer needed funding from the government.

This however was a disadvantage to the health service providers. It would form a disparity in the fund allocation as those without the specialized treatment machines and staffs would receive less funding than those who have. There are also some hospitals that were offering these services in a private-set package, meaning more profit would now be forced to offer them on a subsidised government set rates. This fact puts them at an awkward situation as their staffs will be overworked and their facilities limited to first come first serve formula that should not be applicable in a health setting.

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Reduced premium spent on the uninsured population.

Every state in the U.S is responsible for all its citizens’ health issues irrespective of whether they are insured or not. This means that the governments allocate a certain amount of the total revenue to cater for those citizens that do not have insurance coverage. With the introduction of Medicaid, the funds allocated for these purposes can be redirected to other sectors of the economy. A projection done during the restructuring of Medicaid estimated a 1.7% saving on the total revenue allocated for the purposes of citizen health related medications, subsequently reducing the money paid by the state for medical supplies by an equivalent percentage (Desai, 2003).

The rationale behind this policy was to minimize the government’s spending while at the same time offer people with a deserving medical attention services. However, one factor left out was the effect on the health institutions offering these services. The reduction of the premiums that were earlier the extra income for these health institutions now removed, more people would access health services at a much subsidised rate whereas the hospitals working schedule will be lowered and services that patients earlier received reduced to a basic level. Despite the fact that everyone will be able to receive medical services, it would not be to the standards required due to the reduced funding.

Effects of the tax revenue collected on employment of medical staffs.

These effects vary from the individual level to the national level, with every stakeholder having their role to play. In this study, the arguments revolve around the health institutions and therefore mean that the parties affected will include the health institutions, the body collecting the tax and the patients.

Health institutions

When there is an increased health care spending, a percentage of the cost may be transferred to parties related with the health care industry such as the manufactures of drugs, and that manufacturing hospital equipment such as beds. These will be due to the fact that more patients will be accessing the services of the hospitals meaning that more beds and medication will be required. The manufacturers will be forced to employ in more workers in the attempt to produce more goods for the hospital. The need for the expansion of most health institutions will also create a demand for labour and health services form specialized health workers in different sectors of the hospital to ensure proper running and management of their services. This move creates an additional need for more revenue allocation to cater for the salaries and allowances of the new employees.

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State funded organizations

These include hospitals and any health provider institution. As explained above, the level of spending will determine the level of the development of the medical industry. The state government provides these health organizations with a specified amount of funding which subsequently will be injected in to the economy. Financial services by the state government means that these institutions now can purchase their medical supplies and provide proper and up to the standard services to their customers.

However, depending only on the government funding can prove to be tricky to these institutions as they will have a limited amount of funding for their projects. This is due to the fact that the patients don’t pay any money for the services they receive and thus the hospital has no additional income. The services they provide are completely non-payable as the citizens pay through taxation. Proper budgeting of the available funds is crucial for the running of the health organization. In cases where there is poor budgeting, the patients end up not receiving the proper services that they are paying for and thus the hospitals management will need to explain how the allocated funds were used.

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Measures of the economic impact and the multiplier effect

Economic impact means the change in the country’s economy resulting from either an increase or decrease in the level of spending of a country. Additional new spending in a country can create an effect on the money spent along through the effect of the multiplier. This is due to the effect caused by the continuous rate of money injection in the economy.

The multiplier effect both affects the state and the federal Medicaid level of spending (Greenbaum, 2005). The multiplier effect is caused when the state introduces new money to be used in the economy and the money spending by the federal only helps accelerate it due to the matching arrangements. An example is when a states matching rate has been set at let’s say 60%, for each dollar cut from the Medicaid spending matches 2.02 dollars from the federal government. The state is therefore in this case reducing its overall spending on Medicare services by a proportion of 3.02 dollars and saves a dollar in the state fund.

Those state-only funded programs for health and state spending also generate their own multipliers, although these multipliers don’t have much impact due to the reason that they do not attract the federal funding. These Medicaid payments are made first on the behalf of those enrolled for the program directly to the health organizations that include hospitals, private physicians and nursing homes. This means that there is a direct impact that these Medicaid services have on the health service providers as illustrated in the chart below;

Medical dollar flow through state economy

The direct impact effect makes other industries in the market also affected. This includes the medical supply firm that deals with Medicaid, the medical suppliers and the vendors as stated in the above chart.

The result of this multiplier effect is the increased job creation by these health providers creating a positive impact on the state’s economy.

Actuarial soundness      

This means that the allocated funding for each hospital is enough for its operational costs, from the outpatient to in-patient services (Greenbaum, 2005). It is a concept used in commercial health plans by the state government to ensure that no health organization complains of being deprived of its right to function to full capacity. This is done by estimating each patient’s financial need in a hospital and their utilization of the health facilities by looking at the hospitals past records and statistics on patients received. This value is then multiplied by a given variable and the result represents the hospitals financial usage. This concept is however calculated on the higher side to avoid cases of shortage of funds.

Medical expansion soundness by actuarial analysts
  Employment (jobs) Labour income Value added
Estimated population sample 3,520,755 $220,456 million dollars $250,629 million dollars
Value added to health expenditures 390,790 $20,090 million dollars $22, 045 million dollars
Direct impact on Medicaid expansion 14,900 $645 million dollars $735 million dollars
Direct as the percentage of the states GSP 0.40% 0.28% 0.28%
Direct as a percentage of value added to health expenditures 3.81% 3.18% 3.35%
Total impact on Medicaid expansion 24,000 $978 million dollars $1,340 million dollars
Total as percentage of states GSP 0.62% 0.45% 0.52%
Total as percentage of value added to health expenditure 6.12% 4.85% 60.5%
multiplier 1.52 1.51 1.82

 Rate basis

Setting a base for the payment rate is also important. This prevents the parties involved from feeling short-changed. In majority of cases, accurate and complete information concerning the relevant number of population could not be available posing a need for assumptions that are based on previous data. This would mean that there will be a minimum rate that any institution could receive from the revenue collected and that there is also a minimum required tax payment from every citizen. With this in place all these parties involved will feel at ease knowing that they are paying for the services they are receiving and that there are no free loaders.

Rate basis can also be in the basis of the duration within the payment is to be paid, say maybe monthly, or quarterly. The set duration helps the health institution evaluate its spending and come up with the best formula to be implemented by the hospital.


The purpose of an insurance policy is to share the risk faced by the individual. Setting a monthly rate per patient helps transfer the risk to the Medicaid, the health provider and the patient. This move makes access to proper medical care easy for the common man and also helps the struggling hospitals carter for their medical facility needs. More so, this is a benefit to the government as it has less spending on its health sector.

Hospitals can now rely completely on the government for financial support even in emergency situation. The compromise between these two public service institutions has greatly improved the health sector of U.S states. In Missouri State the federal government contribution to the expansion of Medicaid services is greatly remarkable. This has contributed to the immense improvement of the medical services offered in its health organizations.

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Medicaid is the best health plan for any state that aims at saving its total collected revenue. In most countries, especially the developing nations, patients have insufficient medical attention leading to increased mortality rate. This health plan aims at providing sufficient medical cover to all citizens at a subsidised price that is paid through the monthly taxation. This therefore means that the health organizations will be receiving their funds directly from the government improving their efficiency in medical service delivery. However, it is important for these hospitals to budget their funds well to avoid cases of money deficiency before the end of fund allocation term.



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