Is it too early to speculate on the impact of the next Trump administration on the financial stability of American hospitals? After all, hospital policy was not a major campaign issue during the leadup to the November election. And while no conclusions are readily apparent, the issue of financial stability is certainly subject to informed observation and speculation.
If we take the President-elect at his word, then the key priority for the incoming administration is to extend the 2017 tax cuts and, perhaps, add further tax policy changes. Such policies are likely to reduce federal revenue and, without opposing expense actions, increase the federal deficit. An increase in the deficit almost certainly will cause federal debt to rise with the accompanying risks of renewed inflation and higher interest rates. If you accept this out-of-the-box macro-economic analysis, then hospital leaders should be asking some immediately relevant questions:
- What will be the accompanying federal budget cost reductions that will offset potentially declining federal revenue?
- Where in the federal budget are such cost reductions likely to be found?
- How deep are such cost reductions likely to be?
If you were appointed as the federal budget czar—and you were mindful of the 2026 midterm elections—then you would be cautious with any cuts to both Medicare and Social Security. And given the current international situation, it would be difficult to justify reductions to the defense budget. That leaves the Affordable Care Act’s enhanced subsidies and Medicaid reform on the table.
During his first term President Trump sought to repeal and replace the ACA. Maybe this time around repeal and replace may look more like disrupt and diminish. A best guess here is that the enhanced ACA subsidies will not be renewed. Right away, the stakes here are very high for hospitals.
Since the enhanced subsidies were first enacted in 2021, ACA Marketplace enrollment has expanded markedly. Today, more than 45 million people are covered by either Marketplace insurance or Medicaid expansion provided by the ACA, according to the US Department of Health and Human Services. Without the enhanced subsidies, the Congressional Budget Office projects that enrollment in the ACA programs will drop dramatically between 2025 and 2026—and to further decrease significantly by 2034. Obviously, at this time, it’s not possible to estimate the financial impact of withdrawing these subsidies, but it’s clear that hospitals would be affected very significantly as people fall out of the ACA marketplace and the number of uninsured patients rises.
Beyond this, the Trump administration may bring back short-term plans similar to ones permitted during his first term. Funding for ACA outreach will probably be cut, and it is unclear if the Trump Justice Department will continue to defend the ACA against ongoing challenges. This potential shuffling of the ACA marketplace may cause underlying insurance rates to rise as the enrollment pool shrinks and healthier people opt out of the program.
At the same time, buzz has already started around Republican efforts to reform Medicaid as a series of block grants, potentially shifting more of the burden to individual states. KFF has outlined ways the Trump administration could make Medicaid coverage more difficult by establishing work requirements and tightening eligibility verification.
Taken together, all of the above threatens hard-earned progress in reducing the number of Americans without health insurance. That rate has been nearly cut in half since 2010 from 16% of all Americans to 8.2% of all Americans in the first quarter of 2024. It’s instructive to look at today’s average median direct margins. Looking across a wide variety of service lines, a Kaufman Hall analysis shows the average loss per procedure can reach many thousands of dollars for each self-pay patient, while procedures for those with insurance tend to generate positive margins. While it’s not possible to calculate the precise effect of these potential policy changes on hospitals’ income, there’s little doubt that changes in ACA and Medicaid will have very significant financial impact on the hospital industry.
Admittedly the scenarios above are speculative and subject to change and variation. However, the overall sense of things here for hospitals is likely directionally correct. So, what’s next?
In times of increasing financial stress, your hospital is going to live and die on the quality and sophistication of your financial planning process. Make sure your baseline plan is accurate and all assumptions are current and up to date. Then, use scenario planning to anticipate how both reimbursement reductions as well as an increasing number of uninsured or under-insured patients resulting from changes to Medicaid and the ACA would impact your overall profitability, the integrity of your balance sheet, your overall capital capacity and, in the end, the financial stability of your organization. The next set of scenarios should quantify operational changes that are required by the macro-economic conditions described above.
Right now, America’s hospitals fall into three post-Covid categories. The first category includes those hospitals that emerged from Covid in excellent financial shape. For those hospitals, responding to Trump’s changes in health policy may be necessary only at the margins.
The second category are those hospitals that continue to walk a very fine financial line since emerging from Covid. For these hospitals, substantial changes to Medicaid and the ACA could result in these hospitals moving from operational profitability to a loss position. Anticipated operational changes here are far more critical, and the overall accuracy of the financial plan is also far more important.
And then there are the 37% of all American hospitals that continue to lose money from operations post-Covid. For these hospitals, changes to the ACA or Medicaid could provoke an existential financial crisis. In these situations, hospitals will likely require more radical operational adjustments, if, in fact, such operational changes are even possible. Expect any significant change to Medicaid or the ACA to force further partnership and consolidation activity within this third hospital sector—which leads to a further question. Will the Trump administration’s antitrust policy accommodate increased hospital consolidation resulting from radical changes in federal macro-economic policy?
All of the above is a developing situation of considerable uncertainty for hospitals and their leaders. In moments of such uncertainty, be vigilant and never let your guard down. Always be prepared.
