Hospitals are bracing for a cascade of financial pressures as rising insurance costs, Medicaid restrictions and a growing number of uninsured patients threaten to reshape patient behavior and erode margins in the years ahead, according to a new Moody’s Healthcare Quarterly report.
From declining elective procedure volumes to worsening payer mix and ballooning bad debt, health system leaders face a challenging landscape that could last through 2027 and beyond.
Here are 10 predictions for health system executives.
1. The increasing costs of health insurance and out-of-pocket expenses will likely change patient behavior in the coming years. Hospital leaders can expect lower patient volumes, especially for “profitable elective procedures,” according to Moody’s, which will negatively affect financial performance.
2. Many hospital executives will see a worse payer mix as fewer patients use commercial insurance and Medicaid eligibility is restricted. They’ll likely experience lower reimbursement for services and higher uncompensated care with more uninsured patients.
“These effects will likely be gradual and varied, having a greater effect on hospitals located in certain states or with higher exposure to certain demographic groups,” the report notes. “The impact on margins will likely be muted in 2026, with the potential for more margin erosion ahead.”
3. The number of uninsured patients will likely increase due to higher premiums – which are rising 6% to 7% in 2026 for employer-sponsored plans – and subsidy cuts for ACA plans. Unemployment is also on the rise and with it, a drop in employer-sponsored plans.
4. Medicaid restrictions may “significantly decrease the number of people covered,” especially in states with Medicaid expansion. Work requirements expected to take effect next year will further limit access. Hospitals can expect fewer Medicaid-covered patients and more resources spent on administrative work and redetermination, according to the report.
“There is also the potential for revenue losses due to provider payment caps and reductions in the Federal Medical Assistance Percentage (FMAP), the formula used to determine how much of a state’s Medicaid costs are paid by the federal government,” the report notes.
5. Bad debt will likely increase as hospitals see lower patient volumes, more uninsured patients and pass more costs on to patients.
6. Hospitals may report a decline in elective surgery as patients lose health insurance or take on high deductible plans, opting to forgo care until it’s life threatening. Fewer high-dollar elective procedures would negatively affect cash flow, according to the report.
7. Uninsured patients and patients with limited access to healthcare may also decide to forgo preventative care and routine visits, which would lead to higher emergency room traffic. “This will further cut into hospitals’ profit margins,” according to the report.
8. Hospitals may see less reimbursement for services performed after payer mix shifts. “We estimate that a one percentage-point shift in payor mix from commercial to Medicaid is associated with an estimated 0.5%-1.0% decline in net patient service revenue and approximately 50-150 basis points in operating margin compression, before consideration of offsetting cost actions or Medicaid supplemental payments,” the report says.
9. The hospitals with large emergency medicine operations will likely experience more negative impacts from uncompensated care.
10. For-profit hospital operators could see reduced EBITDA due to the ACA’s enhanced premium tax credit expiration. Moody’s estimated for-profit operators could see up to 6.4% reduction in EBITDA year over year, with larger companies most able to make adjustments that would dampen impact.
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