DHA 721 Week 7 Government's Role in Financing Health Care Example

Seventy Cents of Every Dollar: Government Financing and the Survival of Four Rural North Carolina Hospitals

[Student Name]

University of Phoenix

DHA/721: Health Care Economics

Week 7 Assignment

[Instructor Name]

[Date]

The rural hospitals, payer shares, dollar figures, enrollment and projections are composites written for a model paper; research findings come from the sources cited.

Of every dollar the region's four rural hospitals receive, about seventy cents comes from Medicare and Medicaid. Private insurance provides about twenty-two cents, and patients paying themselves and other sources provide the rest. When the network's board discussed federal proposals to change Medicaid financing, the regional vice president was asked to explain what government's role in financing care means for the region and what position the network should take. This paper provides that analysis.

The Economic Case for Public Financing

The case begins with market failure. Private insurance markets struggle to cover people with high expected costs, such as older adults and people with chronic illness, because of adverse selection and underwriting. Low-income people cannot afford premiums that reflect their costs. And care such as vaccination and treatment of infectious disease benefits others as well as the patient.

The Equity Case

Beyond efficiency, most societies judge that access to essential care should not depend on income. Public financing through taxes spreads the cost of care across the population according to ability to pay, rather than according to health.

Medicare and Its Effects

Medicare, created in 1965, finances care for older adults and some people with disabilities. Finkelstein examined its introduction and found that it was associated with a large increase in hospital spending, much larger than would be predicted from individual-level studies of insurance, as hospitals expanded, entered new markets and adopted new technology in response to the new source of payment (Finkelstein, 2007). Public insurance, in other words, changes the supply side of the market as well as demand.

What Medicare's Effects Mean

Finkelstein's finding cuts two ways. It shows that public financing can build health care capacity, including in places that lacked it. It also shows that public programs can drive total spending upward, a concern for taxpayers and for the long-term cost of care. For the region, the lesson is that public money built many of the rural hospitals that exist today, including two of the four, which expanded in the years after Medicare began.

Medicaid and Its Effects on Health

Medicaid finances care for low-income people, jointly funded by federal and state governments. Before the Affordable Care Act, several states expanded Medicaid to low-income adults. Sommers and colleagues compared three such states with neighboring states and found that expansions were associated with a reduction in adjusted all-cause mortality of 19.6 deaths per 100,000 adults, a 6.1% relative reduction, largest among older adults, nonwhite residents and residents of poorer counties, along with fewer delays in care because of cost (Sommers et al., 2012). Coverage paid for by government changed not only who paid for care but who survived.

Medicaid and Hospital Finances

Public financing also shapes hospital survival. Lindrooth and colleagues studied hospital closures and finances from 2008 to 2016 and found that the ACA's Medicaid expansion was associated with better hospital financial performance and a substantially lower likelihood of closure, especially in rural markets and counties with many uninsured adults before expansion; they concluded that returning to pre-ACA eligibility would lead to large increases in rural closures (Lindrooth et al., 2018).

North Carolina's Expansion

North Carolina expanded Medicaid in December 2023, after years of debate. In the region's counties, enrollment among working-age adults rose by about 9,000 in the first year. The hospitals' charity and bad-debt totals dropped by roughly a third, and self-pay emergency visits dropped as well, since patients who had avoided care for cost began seeing clinicians. For hospitals with thin margins, the change was significant.

The Region's Dependence

The region's dependence on public financing is both a strength and a vulnerability. Public programs keep the hospitals open and patients covered, and Medicare's rural payment designations, such as critical access status for the smallest hospital, pay closer to actual cost. But Medicare and Medicaid prices are set by government, often below the cost of care, and a change in federal or state policy can shift millions of dollars in a single budget.

Arguments for a Smaller Public Role

Opponents of expanding public financing raise serious points. Public programs add to government spending and taxes. Administered prices can underpay providers, leading them to raise commercial prices or limit services. Some argue that public programs crowd out private coverage and reduce incentives for efficiency and innovation. Others point out that public insurance brings political control over what is covered, so decisions about care may follow budgets and elections rather than evidence. These arguments deserve a hearing from a network that depends on public money, because they identify real risks, even if the evidence on health and hospital survival points the other way. Finkelstein's evidence on spending growth lends support to the concern about costs.

Weighing the Arguments

The evidence supports a strong public role in financing care for older, disabled and low-income people, where private markets fail and the health benefits are measurable. It also supports attention to cost growth and to payment levels that sustain providers without inflating spending.

Recent Federal Changes

A 2025 federal statute adds work requirements for many adults in the Medicaid expansion group and limits financing mechanisms states use to fund their share. For the region, lost coverage would reverse part of the gains since 2023, returning uncompensated care to the hospitals. Many of the region's newly covered adults work seasonal, part-time or farm jobs with irregular hours, and some care for family members; documenting monthly work hours will be hardest for exactly these people. The finance team estimated that if a fifth of expansion enrollees in the region lost coverage, uncompensated care would rise by about $1.2 million a year.

The Network's Position

The vice president recommended that the network support stable public financing for Medicaid expansion, advocate for payment rates that reflect rural costs and support policies that make enrollment and renewal simple, while acknowledging the need to control cost growth. The position rests on evidence rather than loyalty to any program: coverage has measurable effects on deaths and on whether rural hospitals survive, and the network should say so plainly while also showing taxpayers that it uses public money efficiently.

Strategies for the Region

The region will help patients keep coverage through renewal assistance and help with documenting work hours or exemptions, diversify revenue through partnerships and value-based contracts, reduce costs through shared services and model the financial effects of possible coverage losses under several scenarios, updating the model as federal rules are finalized.

Measures

Measures include payer mix, days cash on hand, uncompensated care, Medicaid enrollment and renewal rates in the region, operating margins and access measures such as primary care visits by adults enrolled after expansion.

Conclusion

Government finances seventy cents of every dollar the region's hospitals receive. Economic theory explains why: markets fail for high-risk and low-income people, and equity demands access. Evidence shows public insurance raises spending but also reduces deaths and keeps rural hospitals open. A strong, stable public role serves the region best.

References

Finkelstein, A. (2007). The aggregate effects of health insurance: Evidence from the introduction of Medicare. The Quarterly Journal of Economics, 122(1), 1-37. https://doi.org/10.1162/qjec.122.1.1

Lindrooth, R. C., Perraillon, M. C., Hardy, R. Y., & Tung, G. J. (2018). Understanding the relationship between Medicaid expansions and hospital closures. Health Affairs, 37(1), 111-120. https://doi.org/10.1377/hlthaff.2017.0976

Sommers, B. D., Baicker, K., & Epstein, A. M. (2012). Mortality and access to care among adults after state Medicaid expansions. New England Journal of Medicine, 367(11), 1025-1034. https://doi.org/10.1056/NEJMsa1202099