Medicaid's Vital Role in Rural America

Economic Impact and Community Health

Medicaid serves as the cornerstone of rural America's health care infrastructure, covering nearly one-quarter of rural residents under 65 and providing critical financial support that keeps rural hospitals operating, sustains local economies, and improves health outcomes in communities that face unique health care challenges.

While proposed reductions in Medicaid funding will harm many people, it will likely be the rural communities that are harmed the most. Let’s look at why!

Understanding Medicaid: Foundation and Purpose

Medicaid was established in 1965 as part of President Lyndon B. Johnson's Great Society programs, creating a joint federal-state partnership designed to provide health care coverage to America's most vulnerable populations. As of January 2025, Medicaid provided health coverage for over 70 million low-income Americans, making it the single largest source of health coverage in the United States.

The program's foundational purpose centers on "providing health coverage to those who cannot afford it, including many low-wage workers without job-based coverage, people between jobs, and people who can't work because of a disability or chronic health problem." Unlike private insurance tied to employment, Medicaid functions as a critical safety net, automatically expanding during economic downturns when people lose their jobs and employer-sponsored coverage.

Side Note: It is still a bad idea to tie health coverage to employment when there are natural cycles of economic growth and downturns that cause layoffs. Medicaid is the only defense for most families against this illogical relationship between employment and health care coverage.

Evolution of Eligibility Criteria

The Patient Protection and Affordable Care Act (ACA) of 2010 transformed Medicaid's landscape. In 2010, the ACA expanded Medicaid to nearly all nonelderly adults with income up to 138% FPL ($20,780 annually for an individual in 2024) through a new coverage pathway for adults without dependent children who had traditionally been excluded from Medicaid coverage.

Today's eligibility framework operates under federal minimums while allowing state flexibility. Federal minimum eligibility levels for children and pregnant women are set at 133% of the federal poverty level (FPL) ($35,630 for a family of 3 in 2024), though many states extend coverage well above these thresholds. The Affordable Care Act established a new methodology for determining income eligibility for Medicaid, which is based on Modified Adjusted Gross Income (MAGI).

Medicaid's Reach in Rural America

Rural communities rely on Medicaid coverage at significantly higher rates than their urban counterparts, reflecting the unique economic and demographic challenges these areas face. Nearly a quarter of individuals under age 65 who live in rural areas are covered by Medicaid, demonstrating the program's outsized importance in these communities.

The disparities are particularly stark for children and families. Among children, Medicaid/CHIP covered 36% - 47% of children in rural areas compared to 40% in metro counties, while 18% of adults in rural counties relied on Medicaid/CHIP compared to 15% of adults covered in metro counties. These higher enrollment rates reflect several factors unique to rural areas: lower average incomes, higher poverty rates, limited access to employer-sponsored insurance, and fewer job opportunities that provide health benefits.

Medicaid coverage rates rose from 12% of the rural population in 2010 to 17% in 2020. It reached 21% in 2023, coinciding with the continuous enrollment condition during the COVID-19 public health emergency. The expansion has been particularly beneficial in states that adopted the ACA's Medicaid expansion, where uninsured rates among rural residents are consistently higher in states that have not yet adopted the ACA's Medicaid expansion (16%) vs. those that have (12%).

Economic Impact on Rural Communities

Medicaid's influence extends far beyond individual health coverage, serving as a powerful economic engine in rural communities. The program generates substantial revenue streams that support local businesses, create jobs, and stabilize community finances in areas with limited economic diversity.

Revenue Generation and Employment

Rural hospitals, often among the top three employers in their communities, depend heavily on Medicaid reimbursements to maintain operations. Using an economic model from the American Hospital Association¹, rural hospitals have shared that their facility contributes as much as $200,000 per hospital employee to their community. That means that if the hospital has 300 employees the total economic contribution is $60,000,000 per annum back to the rural community.

This economic impact multiplies throughout rural communities. When hospitals receive Medicaid payments, those dollars circulate through the local economy, supporting everything from medical supply companies to restaurants where hospital staff eat lunch. Imagine cutting ~20% of revenue to such an important employer in the area and the effects on the local businesses and communities.

Infrastructure and Business Development

Health care facilities serve as anchor institutions in rural communities, attracting other businesses and services. Not only were the rural hospitals part of the local economy and supportive to local nursing homes but they also provided a sound structure to local community governance and volunteer community services that we often see with business groups in communities. For example, charity fund raising and support of school activities go hand in hand with rural hospitals.

The presence of stable health care infrastructure also influences business location decisions. Companies considering rural locations factor in health care access for their employees, making Medicaid-supported facilities crucial for economic development efforts.

Impact on Rural Hospitals

Rural hospitals operate on razor-thin margins, making them exceptionally vulnerable to changes in payment policies. Medicaid provides critical financial stability for these institutions, which often serve as the sole source of emergency, inpatient, and specialized care for their communities.

Financial Stability and Closure Prevention

The data on hospital closures starkly illustrates Medicaid's protective effect. The Chartis Group found that rural hospitals in Medicaid expansion states are 62 percent less likely to close than nonexpansion states, and the U.S. Government Accountability Office found states that increased Medicaid eligibility and enrollment had fewer rural hospital closures.

Median operating margins among rural hospitals were higher in expansion than non-expansion states in 2019 (2.0% versus 0.3%), demonstrating the tangible financial benefits of Medicaid expansion. This difference becomes even more pronounced in the most rural areas, where about six tenths (59%) of hospitals in non-expansion states had negative margins compared to less than half (45%) of rural hospitals in expansion states. This is direct evidence of the effect of Medicaid coverage in rural communities.

Now, the alternative argument here is: well, if rural communities are unsustainable, then why don't all the people just leave? Sure. But, go ahead and tell the people who live there about your opinions on how they should leave. Economically, it would make sense for them to relocate to urban areas with better job opportunities and infrastructure. But, people value their homes and communities.

Specialized Services and Maternal Care

Rural hospitals often struggle to maintain specialized service lines due to low patient volumes and poor reimbursement rates. Medicaid paid rural hospitals approximately 63 cents on the dollar for inpatient obstetrics care in 2024, yet these services remain essential for rural women. Medicaid covered 1.5 million births in 2023—representing 41% of all U.S. births—and financed nearly half (47%) of births in rural areas.

The closure of obstetric units has severe consequences for rural families. There has been a 16% decline in rural counties with hospital-based obstetric care services over the last decade, forcing expectant mothers to travel greater distances for delivery and prenatal care.

Uncompensated Care Burden

Medicaid expansion has significantly reduced the uncompensated care burden that rural hospitals face. Hospitals in expansion states had uncompensated care costs substantially lower than in non-expansion states (2.7% vs. 7.3%), reflecting the positive impact upon their financial stability. When previously uninsured patients gain Medicaid coverage, hospitals receive payment for services that would otherwise constitute charity care or bad debt.

Health Outcomes in Rural Communities

Rural residents face unique health challenges that make Medicaid coverage particularly crucial for community well-being. Overall, rural residents have worse health outcomes and tend to be older, poorer, and sicker than those in urban areas.

Addressing Health Disparities

Rural communities experience higher rates of chronic diseases, including diabetes, heart disease, and mental health conditions. The geographic isolation, limited provider availability, and economic challenges that characterize rural areas create barriers to accessing timely, affordable care. Medicaid helps bridge these gaps by ensuring that low-income rural residents can access primary care, prescription medications, and specialist services.

The program's role in mental health and substance abuse treatment is particularly critical in rural areas, where Medicaid payments cover a large proportion of costs for behavioral health services in hospital settings, which include substance use disorder treatment. Despite inadequate reimbursement rates, Medicaid provides essential funding that enables rural hospitals to maintain these crucial services.

Preventive Care and Chronic Disease Management

Medicaid coverage enables rural residents to access preventive care services that can identify health problems early and manage chronic conditions before they become severe and expensive to treat. Children in rural areas in particular are less likely than children in urban areas to have had a checkup and a dentist visit in the past year. Medicaid helps address these disparities by providing comprehensive coverage that includes dental and vision care for children.

For adults with chronic conditions like diabetes or hypertension, regular access to health care through Medicaid can prevent costly emergency department visits and hospitalizations. This not only improves individual health outcomes but also reduces the financial strain on rural hospitals.

The Ripple Effects of Coverage Loss

The interconnected nature of rural health care systems means that reductions in Medicaid coverage or funding create cascading effects throughout these communities. If Medicaid funding is reduced, then it will result in higher rates of uninsurance across the US, with a higher impact in our most vulnerable rural areas. These are parents, children, and working adults who would no longer be able to obtain needed health care due to it being unaffordable.

When rural hospitals close due to financial pressures, the impact extends far beyond health care access. When a hospital closes, the effects ripple throughout a community, particularly if it is the only health care facility in the area. Many physicians relocate to another hospital or leave the area, further reducing timely access to health services and emergency care. Research shows that the economic impact of a hospital closure is felt immediately, with per capita income falling and the unemployment rate rising.

Conclusion

Medicaid's role in rural America continues to evolve as policymakers grapple with competing priorities around health care costs, coverage, and access. The program's success in reducing uninsured rates, supporting rural hospitals, and improving health outcomes in underserved communities demonstrates its value as both a health care program and an economic development tool.

The ACA and its Medicaid expansion were key successes to reducing the uninsured rates in rural areas. As rural communities face ongoing challenges from demographic changes, economic pressures, and provider shortages, Medicaid remains a critical foundation for maintaining health care access and community viability.

The program's counter-cyclical nature—expanding during economic downturns when need is greatest—makes it particularly valuable for rural communities that often experience more volatile economic conditions than urban areas. By providing stable funding for health care infrastructure and coverage for vulnerable populations, Medicaid helps rural communities weather economic storms and build foundations for future growth.

1. I usually try to refrain from using data from trade associations due to bias, but this seems like its a decently objective model to substantiate the point.