Uncompensated Care for the Uninsured in 2013: A Detailed Examination

Despite not having health insurance, millions of uninsured Americans use health care services every year.  Since health care is costly and the vast majority of uninsured have limited financial means, many uninsured often cannot pay their medical bills.¹ Recognizing the need for and importance of health care providers that care for those without insurance, the federal government, states and localities have long provided support—financial and otherwise—to help defray providers’ the costs of caring for uninsured individuals.

The federal government, for instance, heavily invests in the roughly 1,200 community health centers located across the country.  It also helps to cover providers’ uncompensated care costs through Medicare and Medicaid disproportionate share hospital (DSH) payments, which are targeted to hospitals to partially offset costs associated with caring for the uninsured and other vulnerable populations. Providers that render care to the uninsured vary widely across the country, ranging from teaching hospitals and community health centers to office-based physicians and school-based clinics.With the enactment of the Affordable Care Act (ACA), signed into law on March 23, 2010, the nation’s health care landscape will be fundamentally reshaped, particularly for how care is delivered to the low-income uninsured and how that care is financed.  Chief among the ACA’s many provisions is the Medicaid expansion in which states, at their option, can cover individuals up to 138 percent of the federal poverty line (FPL). The ACA also provides subsidies for people with incomes below 400 percent of the FPL to purchase health insurance and tax credits to help small businesses provide coverage to their employees. In addition, the law establishes health insurance Marketplaces for individuals and businesses to obtain health coverage and requires individuals to have coverage if affordable insurance offers are available. Over the next decade an estimated 25 million people will gain health insurance through the ACA.²

To help cover the costs of this significant expansion of insurance coverage afforded by the ACA, the federal government is providing considerable financial support.  For example, for states choosing to expand Medicaid, the federal government will pay all of the costs between 2014 and 2016; the federal share will gradually decline until 2019 when it will be permanently set at 90 percent. The federal government is also paying 100 percent of the cost of premium tax credits for Marketplace coverage.  All totaled, the cost of the ACA to the federal government is estimated to be around $1.3 trillion over the first ten years (2013-2023).³

Some of the costs associated with the ACA, however, will be offset by reductions in health care providers’ uncompensated care costs: providers’ costs associated with caring for uninsured individuals that previously went uncompensated will decline because many of these individuals will have insurance coverage once the ACA is fully implemented.  Anticipating fewer uninsured and lower levels of uncompensated care, the ACA reduces federal Medicare DSH payments beginning in 2014 through 2020 and Medicaid DSH beginning in 2016 through 2020.  With the expansion of coverage under the ACA, state governments and localities could also realize savings. Many states and local areas support health care services and programs for the uninsured. With higher levels of insurance coverage provided by the ACA, the need for such support may decline.

In this report, we build on earlier work and take a close look at uncompensated care in 2013, just before implementation of health reform.⁴ As detailed below, we use two alternative approaches to estimate the cost associated with uncompensated care that was provided to the nonelderly uninsured in 2013. We also examine how uncompensated care was distributed across health care providers as well as the sources of funding currently in the health care system to help defray providers’ uncompensated care costs.  Finally, we explore the long-standing issue of whether and to what extent private health insurance dollars were used to cover health care costs of the uninsured.

Study findings offer a comprehensive picture of uncompensated care for the uninsured prior to coverage expansions under the ACA, including the level of spending, which providers render it, and the funding sources available to help pay for it. Apart from providing this basic information, study findings identify potential federal, state and local funds currently used to finance uncompensated care that under health reform could be saved and redirected for other purposes or to help pay for care received by the newly insured.

The paper is organized in several sections. In the first two sections, we present estimates of uncompensated care in 2013 using two alternative approaches.  In the third section, we examine the different sources of funding currently available in the health care system to help pay for uncompensated care. Then we examine the extent to which private health insurance dollars are used to help cover uncompensated care.  We conclude with a discussion of the study findings and their policy implications.