Wisconsin Locks In 115% Medicaid Reimbursement Rate for Hospitals

It was a race to the finish line to pass the state budget before President Trump could sign the Big Beautiful Bill into law this summer.

The BBB limits Medicaid reimbursements to 110% for states like Wisconsin, which rejected the Obamacare Medicaid expansion deal. For all other states the limit is 100%. Those limits, however, don’t go into effect until 2028.

The State of Wisconsin had worked out a scheme in its new budget to reimburse hospitals’ Medicaid costs by 115%. It would be grandfathered in as long as the budget got signed into law before the BBB. Wisconsin’s budget law was signed on July 3rd, and the BBB was signed into law on July 4th. That’s great for hospitals, but not so much for their non-Medicaid patients.

How the government pays for Medicaid is a bit of a shell game. The state taxes hospitals and uses that money to reimburse those same hospitals for their Medicaid expenses. The reimbursement is matched by the federal government. That state tax is called the “Hospital Assessment Fee,” which is calculated based on a hospital’s total revenue from patient care.

Previously, the hospital assessment fee rate was 1.7%. In order to increase the state reimbursement amount, that rate was increased to 6% in the new state budget. That rate is also the limit set by the federal government, which knows all about this technique. The state plans on the new rate bringing in an additional $1.1 billion a year.

Despite the Wisconsin Hospital Association’s claim that the increase in assessments will not be pushed off to consumers, the $1.1 billion dollar increase in revenue has to come from somewhere, and hospitals won’t just simply eat the costs. They will certainly pass it off onto consumers.

It is also important to note that the state’s portion of reimbursement funding actually comes from the hospitals themselves through assessments. So hospitals have to cost-shift that portion of the bill, along with other unreimbursed costs, onto other patients.

Previously, for every $100 of services to BadgerCare Plus patients, the government paid $63. Approximately $24.89 came from the state (which came from hospital assessment fees), and approximately $38.11 came from matching federal funds. The hospitals therefore had to push off the remaining $37 to its other customers or operate at a loss. This would be considered a 63% reimbursement rate.

With a 115% reimbursement rate, hospitals are getting back $115 for every $100 Medicaid patient bill. Of this $115, the federal government will be paying $69.49 and the state will be paying $45.51.

The question is: does the increase in federal funding from the 115% reimbursement rate offset the costs of now paying a 6% assessment in net patient revenues? The answer is possibly not. It is all dependent on how a hospital’s net patient revenue compares to that of its proportion of Medicaid patients.

For example, a hospital with $100 of patient revenue will pay $6 in assessment fees. But so long as their medicaid expenses are at least $5.21 for every $100 in revenue, the hospital will break even. And if hospitals' medicaid expenses per $100 of patient revenue are greater than that, they will receive more in reimbursements than they pay in assessment fees, becoming a net positive tax recipient.

To further illustrate this, a hospital with $100 in patient revenue and 50% of its patients on Medicaid would pay a $6 assessment. However, because of its high Medicaid patient volume, it’s likely to receive more than $6 back through reimbursements. In contrast, a hospital with the same $100 in net patient revenue but only 10% of its patients are on Medicaid, would still pay the $6 assessment yet receive less in reimbursements due to its lower proportion of Medicaid patients.

Essentially, hospitals in middle-to-high-income areas will be footing the bill for hospitals in rural and inner-city areas that have a higher volume of Medicaid patients. This will result in cost-shifting onto regular consumers in hospitals with low levels of Medicaid patients, particularly suburban areas.

While the Wisconsin Hospital Association has tried to frame the reimbursement rates as a win for Wisconsinites, the reality is clear: the new assessment rate spells trouble for healthcare costs, particularly for those not on Medicaid.

Moreover, hospitals will now have a bigger incentive to push for Medicaid expansion in Wisconsin, as hospitals with more Medicaid patients will be more likely to get their hospital assessments back in the form of a higher reimbursement rate.

*Percentage costs are measured in aggregate. 115% is only the aggregate average reimbursement rate across all Wisconsin hospitals projected by Fiscal Bureau.