As some policymakers in Washington are pushing to reduce the federal deficit and debt, a new KFF resource provides a concise explanation of federal spending for domestic and global health programs and services, which could be part of any conversation about curbing federal spending.

Federal spending on health programs and services accounted for 30 percent of net federal spending in fiscal year 2022 — or $1.7 trillion out of a total of $5.9 trillion. Specifically, Medicare accounted for 13 percent of the total, Medicaid and CHIP accounted for 10 percent, other domestic health spending accounted for 5 percent, hospital and medical care for veterans was 2 percent, and global health was 0.1 percent. (By comparison, Social Security accounted for 21 percent of net federal spending that year, while defense accounted for 13 percent.)

The large majority of federal health spending (86%, or $1.5 trillion) is mandatory spending that is not subject to annual appropriations votes by Congress. This includes nearly all Medicare spending, federal spending on Medicaid and CHIP (which are jointly funded by states and the federal government), and part of the money devoted to premium tax credits for coverage through the ACA Marketplaces, among other categories of spending.  Medicare accounts for half of mandatory spending on federal health programs and services, while Medicaid accounts for another 37 percent.

The federal government also provides several tax benefits that support health-related activities, known as tax expenditures because they result in lower federal tax revenues.

Some Republican lawmakers have pushed for reductions in future federal spending as part of a deal to raise the debt limit. The Biden Administration has said it will not negotiate spending reductions as part of debt limit talks but is open to separate discussions about approaches to debt and deficit reduction.

Members of both major political parties have indicated that cuts to Social Security and Medicare are “off the table” in these discussions, leaving open the question of whether Medicaid, the ACA’s premium tax credits, and possibly other health programs and services could be targeted for spending reductions.

Our FAQs answer basic questions about health spending and the federal budget and budget enforcement tools, including the debt limit and sequestration. We include detailed explanations and charts about what counts as mandatory spending and what falls into the category of discretionary spending. The debt limit itself does not directly affect levels of spending by the federal government, including mandatory and discretionary health spending.

A KFF analysis finds that outreach to the new 988 number for the national suicide prevention and crisis hotline increased after its implementation in mid-July, then steadied until December 2022, when it rose again. Text volume increased more than 700 percent compared to the year prior but remains a smaller share of overall outreach.

Since the launch of 988, Lifeline has received over 2.1 million contacts—consisting of over 1.43 million calls, over 416,000 chats, and more than 281,000 texts.

The easy-to-remember three-digit number steers callers who are suicidal or experiencing a behavioral health crisis to the renamed 988 Suicide & Crisis Lifeline, where they can be connected to a local Lifeline counselor and may receive crisis counseling, resources, and referrals. Before 988, the Lifeline crisis hotline–established in 2005–was typically accessed through a 10-digit number, which was difficult for callers experiencing a mental health crisis to recall.

The analysis shows that nationally, about 10 percent of calls are transferred to out-of-state overflow facilities and 11 percent are abandoned by the caller. However, the 988 in-state answer rate varies widely across states. In December 2022, in-state answer rates ranged from a low of 51 percent to 69 percent in seven states to a high of 90 percent to 98 percent in 13 states.

As states debate their FY 2024 budgets, long-term funding of local 988 crisis call centers may become an issue. Although the federal government spent money to assist with the implementation of 988, ongoing funding relies heavily on local and state funds. To date, five states have chosen to enact legislation for 988 telecommunication fees that could provide ongoing funding for local crisis call centers. Longer term, additional state and national crisis center metrics related to the referral source, reason, outcome and user experience of using 988 may help inform the 988 implementation and future program improvements.

A new analysis of health insurers’ 2021 financial data shows that insurers continue to report much higher gross margins per enrollee in the Medicare Advantage market than in other health insurance markets.

The analysis examines insurers’ financial data in the Medicare Advantage, Medicaid managed care, individual (non-group), and fully insured group (employer) markets.

In 2021, Medicare Advantage insurers reported gross margins averaging $1,730 per enrollee, at least double the margins reported by insurers in the individual/non-group market ($745), the fully insured group/employer market ($689), and the Medicaid managed care market ($768).

For Medicare Advantage insurers, the gross margins per enrollee in 2021 were similar to the period before the COVID-19 pandemic. Margins per enrollee for the individual and group markets in 2021 were below pre-pandemic levels, while the margins per enrollee for Medicaid managed care insurers are higher.

The high margins per member for Medicare Advantage insurers occur following years of rapid growth in the market, with more than half of eligible beneficiaries expected to enroll in Medicare Advantage plans this year.

The analysis also examines the percentage of premium income that insurers pay out in claims, also called the medical-loss ratio, and finds insurers across the four markets reported similar medical-loss ratios in 2021.

“Health Insurer Financial Performance in 2021” is available online.

The cost of an outpatient visit to a physician’s office, urgent care, or emergency department, depends in part on the level of service provided. This analysis uses claims data from private, large employer-based plan to examine trends in complexity coding across outpatient practice settings from 2004 to 2021.

Over the 18-year period, claims for evaluation and management services trended towards higher complexity codes, even among specific, common diagnoses like urinary tract infections and headaches. These changes are contributing to higher outpatient health spending. In 2021, outpatient evaluation and management spending would be 4% lower in both physician offices and emergency departments than actual 2021 spending, if visits were coded at the same levels as is 2011.

The analysis is available through the Peterson-KFF Health System Tracker, an online information hub that monitors and assesses the performance of the U.S. health system.

Rural hospitals fared worse financially in states that have not expanded their Medicaid programs under the Affordable Care Act than in states that expanded Medicaid, a new KFF analysis finds.

Nearly one third of all rural hospitals nationally are in the 11 states that have not approved the expansion of their Medicaid programs to cover low-income childless adults, and concerns about their ongoing viability has been an issue in legislative debates about whether to do so.

The analysis reveals that the median operating margin for rural hospitals has been consistently higher in states that have expanded their Medicaid programs than in non-expansion states from July 2017 through June 2022, although the financial stability of individual rural hospitals varies widely.

For the most recent period, from July 2021 through June 2022, the median operating margins for rural hospitals in states that have not expanded their Medicaid programs was 2.2%, compared to 3.9% in expansion states, based on the 438 hospitals analyzed.

If not for federal COVID-19 relief funds, rural hospitals would be facing even more challenging times as their finances have worsened, with median operating margins dipping to 1.2% in expansion states and -0.7% in non-expansion states when subtracting out documented relief funds.

Based on an analysis of hospital cost reports, Rural Hospitals Face Renewed Financial Challenges, Especially in States That Have Not Expanded Medicaid is part of KFF’s expanding work examining the business practices of hospitals and other providers and their impact on costs and affordability.

Policymakers have had ongoing concerns about the financial health of rural hospitals and the implications  for access to care and the local economy. Rural hospital finances improved during the COVID-19 pandemic as a result of government relief funds. However, industry reports suggest that the outlook for the hospital sector as a whole deteriorated in 2022 as these funds have gone away and due to ongoing effects of the pandemic (such as labor shortages), rising prices, and investment losses. Concerns about the viability of rural hospitals have been cited as one factor that could potentially motivate lawmakers to expand Medicaid in the eleven states that have not already done so. These non-expansion states collectively account for about one-third (34%) of rural hospitals, based on our analysis of 2021 hospital cost report data.

In this data note, we provide a background on rural hospital finances and use hospital cost report data to describe operating margins among rural hospitals before and during the COVID-19 pandemic (see Methods for details). We find that median operating margins among the rural hospitals in our analysis increased earlier in the COVID-19 pandemic, likely as a result of government relief funds, but that these facilities face renewed financial challenges, especially in states that have not expanded Medicaid (Figure 1). Among rural hospitals in non-expansion states, median operating margins were 2.1 percent during the July 2021-June 2022 period and were -0.7 percent when excluding documented relief funds. In Medicaid expansion states, median operating margins dropped, but remained positive even after excluding documented relief funds.

Rural hospital finances leading into the pandemic

Rural hospitals have faced unique financial challenges that precede the COVID-19 pandemic. Among other challenges, rural hospitals tend to have low patient volumes—given that they serve small populations and residents increasingly travel to urban facilities to receive their care—which may lead to higher costs on average and may limit the ability of rural facilities to offer specialized services. From 2010 to 2019, 114 rural hospitals eliminated inpatient services or closed altogether, while others eliminated specific service lines, such as obstetric units. According to our analysis, in 2019, the year before the beginning of the COVID-19 pandemic, median operating margins were 1.5% among rural hospitals, compared to more than three-times that rate (5.2%) among other hospitals (data not shown).

Although rural hospitals face a common set of challenges, operating margins varied substantially across facilities. For example, we found that about two-fifths (41%) of rural hospitals had negative operating margins in 2019, though about one-third (32%) had operating margins at or above 5.0% in the same year (data not shown). One previous study found that median margins on patient care are greater among large versus small rural hospitals, though another analysis found that closures were less likely among Critical Access Hospitals (rural facilities that are eligible for cost-based reimbursement from Medicare on the basis of having 25 or fewer acute inpatient beds and either meeting distance requirements from the nearest hospital or being deemed a necessary provider by the state prior to 2006). The latter study also found that closures were more likely among for-profit hospitals, Medicare Dependent Hospitals (rural facilities that are eligible for greater Medicare reimbursement on the basis of having high Medicare inpatient shares and 100 or fewer beds), hospitals in the South, and hospitals in states that have not expanded Medicaid.

Median operating margins among rural hospitals were higher in expansion than non-expansion states in 2019 (2.0% versus 0.3%) based on our analysis (data not shown), which is consistent with research suggesting that expanding Medicaid has improved the financial performance of hospitals. The Affordable Care Act (ACA) expanded Medicaid coverage for most low-income adults to 138% of the federal poverty level, though a June 2012 Supreme Court decision effectively allowed states to decide whether to adopt the Medicaid expansion. Currently, eleven states have not expanded Medicaid, and they are largely in the South. Previous research has found that Medicaid expansion has resulted in decreases in uncompensated care, increases in operating margins, and decreases in closures of hospitals and obstetric units. Medicaid expansion improves hospital finances by extending coverage to uninsured patients who would otherwise qualify for hospital charity care or be unable to pay their bills. Among studies that have evaluated the effect of Medicaid expansion on urban and rural hospitals separately, most reported that improvements in financial performance have been concentrated among rural hospitals. Although research suggests that expanding Medicaid has improved the financial performance of rural hospitals, it may not be a panacea. For instance, while median operating margins among rural hospitals were higher in expansion than non-expansion states in 2019 (2.0% versus 0.3%), they were still lower than median operating margins among non-rural hospitals in expansion states (4.2%) (data not shown).

Trends during the pandemic

The financial performance of rural hospitals improved substantially early in the pandemic, likely as a result of government relief funds. Median operating margin among rural hospitals increased from 1.0% during July 2017-June 2019 to 7.7% during July 2019-June 2021 based on our analysis of a subset of hospitals (see Methods for details). Rural hospital closures had been increasing since 2017 before peaking at 19 closures in 2020 (the largest number since at least 2005) and then dropping to 2 closures in 2021 (the smallest number since at least 2005).

The large improvement in the financial performance of rural hospitals likely reflects the receipt of government relief funds, including dollars that were targeted specifically towards rural hospitals. Subtracting out relief funds documented in hospital cost reports lowers median operating margins during July 2019-June 2021 from 7.7% to 3.9%, according to our analysis. It appears that some hospitals did not separately or completely report relief funds, meaning that our estimates may overstate what operating margins would have been in the absence of relief funds, and potentially substantially so. In other words, relief funds likely played an even more substantial role in supporting rural hospital operating margins than suggested by our analysis.

Rural hospitals now face renewed financial challenges. After increasing substantially earlier in pandemic, median operating margins among the rural hospitals in our analysis fell from 7.7% in July 2019-June 2022 to 3.3% in the July 2021-June 2022 period. When subtracting out relief funds documented in hospital cost reports, median operating margins were slightly lower than pre-pandemic levels during the July 2021-June 2022 period and would likely have been even lower if accounting for relief funds that were not specifically documented by hospitals. Industry reports suggest that the outlook for hospitals and health systems deteriorated in 2022, which is only partially reflected in our analysis of July 2021-June 2022 data. In this context, it is not clear whether hospital closures may reemerge as an issue facing rural communities. There were seven hospital closures in 2022, which was greater than the number in 2021 (2 closures), but still less than the average number from 2005-2022 (10.3).

Median operating margins among rural hospitals were lower in non-expansion states than in expansion states in each period of our analysis, leaving these facilities in weaker financial standing to confront the challenges that have faced the hospital sector in recent months. For example, during the July 2021-June 2022 period, median operating margins among rural hospitals in our analysis fell to 2.1% in non-expansion states (compared to 3.9% in expansion states) and -0.7% when subtracting out documented relief funds (compared to 1.2% in expansion states).

Looking ahead

There may be additional challenges for rural hospitals on the horizon. First, key sources of COVID-19 relief have been largely depleted. This includes Phase 4 Provider Relief Funds—which were intended to be greater for smaller providers—and American Rescue Plan (ARP) rural funds, both of which may have helped sustain rural hospitals during July 2021-June 2022. Second on March 31, 2023, a provision will end that has required states to keep people in Medicaid continually enrolled during the pandemic in exchange for enhanced federal matching funds. A KFF analysis estimated that between 5 and 14 million people could lose Medicaid enrollment as a result, which may increase uncompensated care costs for rural and other hospitals. Finally, the Biden administration has announced plans to end COVID-19 emergency declarations on May 11, 2023. This would eliminate numerous health care policies and regulations that could have implications for hospital finances, such as a 20 percent increase in the Medicare payment rate for hospitalized patients who are diagnosed with COVID-19.

Policymakers have implemented a number of initiatives that are intended to support rural hospitals or restructure the rural health care delivery system. For example, in December 2022, Congress passed an omnibus spending bill that included a two-year extension of Medicare payment adjustments targeted towards rural hospitals. The federal government also recently implemented a new payment model, the Rural Emergency Hospital designation, which provides additional resources intended to sustain emergency and outpatient services at facilities that may no longer be able to support inpatient care. Finally, the Center for Medicare & Medicaid Innovation (CMMI) is testing the Pennsylvania Rural Health Model which provides rural hospitals with an all-payer global budget and is intended to reduce costs, increase quality, and improve the sustainability of rural hospital finances.

It is unclear whether current policy initiatives will be sufficient to sustain access to care in rural areas, especially in states that have not expanded Medicaid, where hospitals are facing greater financial challenges.

KFF has created two new trackers to follow swift-moving reproductive rights litigation in the state and federal courts. The tools, which are currently tracking the status of 21 state cases in 15 states and eight federal cases, will be updated regularly as the litigation proceeds.

Major cases pending in federal and state courts could impact access to abortion and contraceptive care for millions across the US. In fact, a federal district court is considering a case that holds the future of medication abortion nationwide in the balance and the Department of Health and Human Services has appealed a case that has blocked contraceptive access without parental consent for teens in Texas. In addition, abortion bans in 14 states have been challenged in 20 ongoing cases in state courts.

Use the state tracker to follow the progression of each state case in the context of whether state abortion bans are in effect. Explore the federal tracker to keep up with litigation in federal courts that involves access to contraception and abortion, including the federal regulations or policies being challenged and the bases for the challenges.

While there are limits, states can use Medicaid to address social determinants of health (SDOH), or associated health-related social needs. Health-related social needs (HRSN) are an individual’s unmet, adverse social conditions (e.g., housing instability, homelessness, nutrition insecurity) that contribute to poor health and are a result of underlying social determinants of health (conditions in which people are born, grow, work, and age). To expand opportunities for states to use Medicaid to address health-related social needs, CMS recently issued new guidance that builds on guidance released in 2021. This guidance supports the current Administration’s goal to advance health equity as well as end hunger by 2030 and stem increases in homelessness during the COVID-19 pandemic. This policy watch discusses the new opportunities available to states to address HRSN through managed care and through Section 1115 demonstration waivers.

How can states use managed care to address HRSN?

In January 2023 CMS released guidance that paves the way for interested states to allow Medicaid managed care plans to offer services, like housing and nutrition supports, as substitutes for standard Medicaid benefits (referred to as “in lieu of” services (or ILOS)). Under federal rules, states may allow Medicaid managed care organizations (MCOs) the option to offer services or settings that substitute for standard Medicaid benefits, if the substitute service is medically appropriate and cost-effective. For example, a state could authorize in-home prenatal visits for at-risk pregnant beneficiaries as an alternative to traditional office visits. These alternative services must be voluntary for the MCO (to offer) and for the beneficiary (to receive). Costs of the ILOS are built into managed care rates. The new guidance establishes financial guardrails and new requirements for ILOS and clarifies these substitute services can be preventive in nature instead of an immediate substitute (e.g., providing a dehumidifier to an individual with asthma before emergency care is needed). The share of total managed care payments spent on ILOS should not exceed 5%.

This guidance follows the approval of a California proposal to use ILOS to offer a range of health-related services through managed care. Managed care plans provide enhanced care management and “community supports” to targeted high-need beneficiaries. Community supports address social drivers of health and build on and scale work from previous pilot programs and waivers. Service examples include housing transition and navigation services, housing deposits, housing sustaining services (e.g., landlord coordination, assistance with housing recertification), home modifications, medically tailored meals, asthma remediation, and sobering centers.

How can states address HRSN through 1115 waivers?

In December 2022, CMS presented guidance about how states can address HRSN through Section 1115 demonstration waivers. HRSN services that will be considered under the new framework include housing supports, nutrition supports, and HRSN case management (and other services on a case-by-case basis). Under Section 1115, states may have more flexibility to define target populations and services compared to the ILOS option (e.g., states cannot cover rent/temporary housing under ILOS) as well as the ability to add the services to the benefit package and require that plans must offer the services to eligible enrollees. HRSN services must be medically appropriate (using state-defined clinical and social risk factors) and be the choice of the beneficiary. The new CMS guidance specifies spending for HRSN cannot exceed 3% of total annual Medicaid spend. State spending on related social services (before the waiver) must be maintained or increased. To strengthen access, in some cases, states must also meet minimum provider payment rate requirements (for primary care, behavioral health, and OB/gyn services). CMS indicates HRSN spending will not require offsetting savings (that may otherwise be required for services authorized/financed under Section 1115). Although states may gain some flexibility under Section 1115 authority not available under ILOS, 1115 waivers often involve long and complex negotiations between states and CMS and changes in Administration can affect the approval and direction of these waivers.

This guidance follows the approval of waivers in four states (Arizona, Arkansas, Massachusetts, and Oregon) that authorize evidence-based HRSN services to address food insecurity and/or housing instability for specific high-need populations. CMS approved Medicaid coverage of rent/temporary housing for up to 6 months for certain high-need individuals as well as other new/unique housing and nutrition supports (e.g., meal support, including for a household with a child or pregnant woman identified as high risk). CMS also approved federal expenditures to build the capacity of community-based, non-traditional HRSN service providers, that may require technical assistance and infrastructure support to become Medicaid providers.

What to watch?

Going forward, it will be important to follow how HRSN initiatives are funded, implemented, and measured in terms of outcomes. While health programs like Medicaid can play a supporting role, these initiatives are not designed to replace other federal, state, and local social service programs but rather to complement and coordinate with these efforts. The new guidance released by CMS expands opportunities for states to cover HRSN without seeking an 1115 demonstration waiver. While optional for plans to provide HRSN ILOS, the guidance creates a new pathway for states to finance HRSN services on an ongoing basis through managed care. For states pursuing the ILOS option, areas to watch include which health-related services states gain approval to integrate under managed care authority and whether / how many managed care plans opt to offer optional HRSN services. Under Section 1115, areas to watch include which HRSN services states obtain approval for, how states define target populations, as well as how states demonstrate compliance with accompanying Section 1115 requirements (e.g., maintaining state spending on related social services, meeting minimum provider payment rate requirements). Across initiatives/authorities, it will be important to track how states and plans work with community-based organizations and coordinate with relevant state and local agencies and to follow state and federal efforts to monitor and evaluate HRSN programs, including the utilization of HRSN services and the impact of these initiatives on health outcomes and Medicaid spending. Whether states are able to sustain funding streams for HRSN longer term and how future changes in Administration may affect the ability to pursue these initiatives through waivers will be important to watch.