The Build Back Better Act’s Misguided Health Safety Net Cuts

Paragon Health Institute report highlights unfair cuts to hospitals serving low-income and uninsured people in conservative states

A new report from Paragon Health Institute examines how the Build Back Better (BBB) Act would harm states that have been more fiscally prudent as well as harm low-income individuals in those states.

Far more federal funding already supports low-income individuals’ health care services in wealthy states than poorer ones, and BBB’s proposed cuts to the Medicaid disproportionate share hospital (DSH) payments only in states that have not adopted Medicaid expansion would worsen these inequities. DSH is intended to reimburse hospitals for uncompensated care provided to low-income and uninsured patients.

The report—authored by Paragon’s president, Brian C. Blase, PhD—details how the formula created by Congress in 1992 to calculate DSH state-funding levels has continued to favor states that had previously used “gimmicky financing schemes to maximize DHS payments, thereby disadvantaging states that had not employed such schemes.”

Blase formerly served as special assistant to the president for economic policy at the White House’s National Economic Council.

According to Blase, “states that expanded Medicaid under the Affordable Care Act have been much more likely to benefit from DSH’s perverse funding structure.” For example, “in 2021, DSH funds cover 48 percent of the uncompensated care provided by hospitals in Medicaid expansion states compared to just 17 percent in non-expansion states.”

The House-passed BBB Act targets DSH funding cuts to states that have not expanded Medicaid with a 12.5 percent funding reduction. States that expanded Medicaid and generally receive larger allotments of DSH funding than non-expansion states would face no reductions in funding, thereby increasing the inequity of federal support for safety net providers.

“Federal financing of Medicaid needs significant reform,” writes Blase. “Fundamental and meaningful Medicaid financing reform would realign states’ incentives, away from using Medicaid to maximize federal payments and instead toward obtaining the best outcomes and value for program recipients and taxpayers supporting the program….”

According to Blase, DSH funding should be allocated to states “based on the amount of uncompensated care provided by hospitals in those states.” He recommends tightening federal rules to “ensure that states distribute the funds to the hospitals with the most need—hospitals that treat the greatest number of uninsured and low-income patients—instead of hospitals with the most political clout.”

The full Paragon Health Institute report, Punishing Conservative States: Payment Cuts to Hospitals Where Federal Spending is Already Low, can be found here.



Brian C. Blase, PhD, is the President of Paragon Health Institute and directs Paragon’s Private Health Reform Initiative. He is also a senior research fellow at the Galen Institute and a visiting fellow at the Foundation of Government Accountability. In addition, he is CEO of Blase Policy Strategies. From 2017 through 2019, he was a special assistant to the president for economic policy at the White House’s National Economic Council. He has a PhD in economics from George Mason University and publishes regularly in outlets such as The Wall Street Journal, New York Post, The Hill, Health Affairs, and Forbes. He lives in northern Florida with his wife and five children.

Paragon Health Institute is a health policy research institute that aims to improve health care and lower prices by empowering patients, expanding competition in the market, and increasing innovation.

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