Southwest Memorial Hospital in Cortez, Colorado, received more than 59,000 patient visits last year. That’s enough to treat everyone in Cortez and surrounding Montezuma County twice.
Staff call the small hospital a bedrock of both medical care and the local economy.
But warnings that the Republican-controlled federal government might cut Medicaid funding have community members worried about the facility’s future.
They are not alone. Nationally, health policy experts warn that any cuts to Medicaid are likely to cause more trouble for rural hospitals than urban ones. That’s due in part because rural residents are more likely to be enrolled in Medicaid.
In Montezuma County, 36% of the population is enrolled in Medicaid, which is publicly supported medical insurance for lower-income Americans. Southwest Memorial Hospital, a nonprofit hospital, expects about $20.5 million to come from the Medicaid reimbursements in 2025. That’s nearly a quarter of their expected revenue for the year, according to CEO Joe Theine.
If that revenue is threatened, the health care system would have a hard time adjusting without affecting the services they can offer.
Theine said that the hospital is planning for growth in 2025. But if Medicaid is cut, the hospital would have to consider their level of services, the same way a family would have to revise its spending if it lost a big part of its income.
“If (you) had a 25% reduction in household income, you have to make some different decisions other than just around the edges,” Theine said.
Any such changes could affect the community’s level of health services and the local economy.
The hospital employs nearly 500 locals, including employees with young families that support Cortez’s public schools, Theine said. “The ripples of a hospital in a rural community are many beyond just the health and wellbeing of the people we serve directly,” he said.
Medicaid reimbursement is a crucial part of Southwest Memorial’s funding, despite reimbursing less at lower rates than private insurance.
“If a patient comes in and has Medicaid as a pay source, even though it may pay less than the average cost for that service, it still is contributing to paying for that fixed cost of having the emergency room open,” said Theine, “If that same patient no longer has insurance and is unable to pay, we still take care of them. But now there’s nothing coming in that’s contributing to keeping all of those services available.”
A March 5 letter from the Congressional Budget Office to two Democratic representatives said that House Republicans won’t be able to meet their budget target of $1.5 trillion in cuts without slashing Medicaid and Medicare.
Speaker of the House Mike Johnson said Medicaid was safe under Republican lawmakers, but the math doesn’t add up with Trump’s determination to drop the national deficit by more than $1 trillion, according to Democrats.
“There have been proposals around reducing or eliminating that federal match for [Medicaid] expansion populations,” said Carrie Cochran-McClain, chief policy officer of the National Rural Health Association.
That match was part of the 2010 Affordable Care Act, which provides federal funds to states to expand eligibility for Medicaid to families that earn up to 38% above the federal poverty line. A later Supreme Court ruling made Medicaid expansion optional. Currently, all but 10 states have accepted federal funding and expanded Medicaid.
How does Medicaid reimbursement work?
Every year, the federal government reimburses every state a percentage of their overall Medicaid costs under a formula called the Federal Medical Assistance Percentage, commonly referred to as FMAP. The federal reimbursement rate, or FMAP, varies by state based on that state’s median income, with the lowest federal reimbursement rates set at 50%.
In Colorado and California, for example, the federal government issues a reimbursement rate of 50% of total Medicaid costs. But in states that have expanded Medicaid under the ACA, the federal government also reimburses them for 90% of the Medicaid costs of the expansion population. Colorado, along with 40 other states (including the District of Columbia), have expanded Medicaid under the ACA legislation.
According to a 2023 report from the Medicaid and CHIP Payment and Access Commission, an organization that advises Congress on health care policy, hospitals in states that expanded Medicaid under the ACA don’t have as many uninsured patients as those that didn’t adopt expansion. Medicaid expansion can save hospitals money by increasing the share of its patients who are covered under some form of insurance.
An analysis of 600 research papers on Medicaid found that expansion led to drops in the uninsured population and economic improvements for both states and health care providers. In the fiscal year 2020, the cost of uninsured care represented 2.7% of the total operating expenses in states that expanded Medicaid, compared with 7.3% in states that haven’t expanded.
Medicaid expansion under the ACA also means states can spend less money on mental health and substance use treatments because federal matches help pay for them.
“States can come up with a number of different ways that they finance their Medicaid programs, and it varies across the board,” Cochran-McClain said. “They can use specific kinds of fees or taxes to help support the Medicaid program.”
Reducing or eliminating that federal match would leave states with the option to either reduce the number of Medicaid enrollees, or to come up with another method of funding care for the expansion population. But some states might not be able to make up the funds.
The loss of that federal money would be especially hard on rural health-care providers, Cochran-McClain said. That’s because a greater share of the rural population relies on Medicaid compared to urban and suburban areas.
Nonmetropolitan, or rural, counties have slightly higher Medicaid enrollment rates than metropolitan counties. Nationwide, 24% of residents in rural counties received Medicaid either alone or in combination with another health insurance method in 2023, compared to about 20% of the metropolitan population that year.
In Colorado, 23% of the nonmetropolitan population and 18% of the metropolitan population received Medicaid in 2023, according to a Daily Yonder analysis of Census data.
Of the 47 states that have nonmetropolitan counties, 43 of them have higher Medicaid enrollment rates in rural areas compared to metro ones.
“There is a really direct and strong relationship between Medicaid coverage levels and the financial viability of rural hospitals,” Cochran-McClain said. “In states that have expanded Medicaid, we saw an improved hospital performance, rural hospital performance and smaller rates of vulnerability for rural hospitals.”
Expanding Medicaid to include more low-income individuals saves states money by reducing the cost of providing care to the uninsured.
States that have not expanded Medicaid leave their rural health care systems more vulnerable to financial crises.
“Whether it’s Medicare or Medicaid, it’s a really important revenue source and source of coverage,” said Cochran-McClain.
Colorado lawmakers voted to expand Medicaid coverage in 2009, ahead of implementation of ACA. The state simultaneously created a hospital provider fee program that funds the state’s portion of Medicaid. In Colorado, the federal match rate comes to 63.6%. The hospital provider fees pay the rest..
Many states use provider taxes or fees to fund Medicaid programs at the state level. Colorado taxes hospitals and health care providers 5.5% of revenue (the fee cannot exceed 6%) with a program called the Colorado Healthcare Affordability and Sustainability Enterprise (CHASE). That money is then matched by the federal government at 90%, as long as the population falls under the ACA expansion eligibility.
Colorado’s CHASE funds go to offsetting the difference between Medicaid reimbursement and the actual cost of a service. Medicaid typically reimburses a provider around 50% of cost, said Tom Rennell, senior vice president of financial policy and data analytics for Colorado Hospital Association.
Rennell said that CHASE “helps out our rural hospitals more than our urban hospitals. Our rural hospitals pay in less fees and our rural hospitals receive more of the distribution.”
Increasing taxes and fees from health care providers are one funding source that could help bridge the gap if federal funding is cut, said Rennell.
In Colorado, the state legislature has a constitutional requirement to have a balanced budget. That budget is currently facing a $1.2 billion deficit, some of which is caused by rising Medicaid costs. Colorado’s Taxpayer Bill of Rights restricts government spending to population growth plus inflation, meaning that any additional tax revenue over that formula is returned to taxpayers.
This means that even if the state has the revenue to balance the budget, it’s incredibly difficult to reallocate those funds to other programs, like Medicaid. Colorado voters have historically been very protective of TABOR refunds. Raising taxes to fund Medicaid is also not an option in Colorado under TABOR.
“The state’s already wrestling with a billion dollar shortfall in our upcoming year, and then add onto that potential additional shortfall from this federal funding. And those really start to add up to some real sizable impacts that the state is going to have to deal with,” said Rennell.
The Colorado Hospital Association estimated that federal Medicaid cuts could cost the state $27.2 billion over the next five years, depending on specific cuts.
Rennell sees the potential cuts affecting rural hospitals disproportionately. “This funding from the federal government is their lifeline. It is what keeps those rural hospitals operating. And if you cut the lifeline, they will have to make difficult choices.”
This story was produced with support from the LOR Foundation. LOR works with people in rural places to improve quality of life.
