Uncompensated Care for the Uninsured in 2013: A Detailed Examination

Discussion

In this study, using MEPS data, we estimated providers’ uncompensated care for the uninsured in the U.S. health system at $84.9 billion in 2013. Relying on secondary data from government and provider sources, we produced a second 2013 estimate of uncompensated care of $74.9 billion.  We believe that the latter understates uncompensated care: For one, the second estimate does not include acknowledged uncompensated care provided by office-based non-physician health care providers such as dentists, optometrists and chiropractors. Further, owing to data limitations, we made some admittedly crude assumptions about the shares of government-sponsored community-based providers’ budgets (such as the Veterans Administration) that went to pay for care for the uninsured. For many of these providers, we assumed this share was equal to the level of uninsurance in the overall population.  Given that insured individuals generally have more options on where to get health care than the uninsured, we recognize that this assumption underestimates how much of these providers’ budgets is spent on the uninsured.  For these reasons, we believe that the $84.9 billion estimate is closer to the actual level of uncompensated care in 2013.

While providers incur significant costs in caring for the uninsured, the bulk of their costs are compensated through a web of complex funding streams that are financed largely with public dollars.  Only a small share, at the most 4.6 percent, of uncompensated care is estimated to be paid for through cost-shifting to those with private insurance.

We estimate that in the aggregate nearly two-thirds of providers’ uncompensated care costs are offset with government payments designed to cover these costs.  Importantly, however, our analysis examines providers’ uncompensated care costs and sources of funding overall, not at the individual provider level. It has long been recognized that funding for uncompensated care is not perfectly allocated to match each provider’s uncompensated care.  As a result, some providers likely incur costs caring for the uninsured for which they receive little to no compensation for. Indeed, important provisions in the ACA calls for improved targeting of Medicaid and Medicare DSH payments to hospitals.

Consistent with earlier work, our analysis shows that the federal government is the largest funder of uncompensated care, providing more than three-fifths of the available funding.  Through DSH and UPL payments, we estimate that Medicaid provided 25.3 percent of total available public funds to cover uncompensated care costs, far surpassing the level of other funding streams. The Medicare program, through both DSH and IME payments, is also a major funder of uncompensated care. Combined these Medicaid and Medicare payments comprised an estimated 40.3 percent of uncompensated care funding in 2013.

Given the importance of these Medicare and Medicaid payments in helping to defray providers’ uncompensated care costs, it will be critical to monitor how the ACA cutbacks in DSH payments affect hospitals, which we estimate provided about 60 percent of uncompensated care in 2013. Based on the premise that the ACA reforms will result in fewer individuals receiving uncompensated care, the law reduces Medicare and Medicaid DSH payments. While as of this writing DHHS has yet to release final rules on the reductions, by 2019 Medicaid DSH payments are to be cut about 50 percent over baseline projections and Medicare DSH payments 28 percent.¹ DSH payment cuts will affect some individual hospitals more than others, since hospitals vary in the amount of uncompensated care they provide and the amount of DSH funding they receive.

Additional concerns have surfaced about how the cutbacks will affect hospitals, particularly considering that the 2012 Supreme Court decision making the Medicaid expansion optional under the ACA and several states deciding not to expand their Medicaid programs. Given this, the coverage gains from the ACA Medicaid will be less than initially projected, and hospitals will likely have a higher level of uncompensated care than had been projected in the post-reform world. General concerns about general ACA rollout (e.g., low public awareness and limited outreach and enrollment) have raised further concerns about the reduction in uncompensated care. All in all, this could potentially lead some hospitals to reduce the level of uncompensated care they provide or pursue aggressive billing against the uninsured.

More broadly, states and localities could similarly reduce their considerable funding of uncompensated care for the indigent, which we estimated to account for nearly a third of overall funding for uncompensated care.  Relying on the same logic that the federal government used to reduce Medicare and Medicaid DSH payments, states and localities could argue that providers will need less uncompensated care funding because more of the uninsured will have coverage through Medicaid, health insurance marketplaces or other coverage.  The benefits from the coverage expansion, however, will vary widely across states and even within areas within a state.

The nation is currently in a highly dynamic health care environment. We have recently implemented dramatic policy changes that will affect the overall level of public and private insurance coverage, as well as uncompensated care funding. How levels of uncompensated care and funding for that care will affect specific health care providers is unclear at this juncture.  It will be essential for federal, state and local policymakers, providers, and consumer advocates to monitor how these many changes affect the provision of uncompensated care for uninsured individuals, of whom there still will be an estimated 29 million in 2017.²