Sources of Payment for Uncompensated Care for the Uninsured

Technical Appendix

In this appendix, we provide a more detailed description of data sources, assumptions, and limitations used in the analysis.  The discussion is arranged by program funding source and level of spending.

As mentioned in the brief, we rely on government program data and appropriations information and other secondary data to estimate the level of public funds paid in 2017 to help offset providers’ uncompensated care costs associated with caring for the uninsured. Specifically, we examine the following funding sources: Veterans Health Administration, Medicaid DSH payments, Medicaid uncompensated care pool payments, state and local indigent care programs, and state and local public assistance programs, Indian Health Service, and community health centers.¹ For direct patient payments, the estimates reflect payments made for direct medical care and services only;² they do not include spending on non-medical related program activities (e.g., costs associated with facilities and administration). More specifically, we excluded costs associated with medical facilities, medical support and compliance, enabling services (e.g., outreach, education, community health workers, etc.), as well as long-term care services and supports.

These estimates are based on available information on program budgets as well as a series of supported assumptions about to what extent funds are directed to cover the cost of care for uninsured people. As such, there is uncertainty in these estimates.

Veterans Health Administration. The Veterans Health Administration (VHA) provides care to over 9 million veterans enrolled in the VA health care program. In 2017, the VHA spent $51.0 billion on direct medical care for veterans, which included direct medical care obligations used to support inpatient care and outpatient care, as well as dental care, mental health care, prosthetics and rehabilitation care. A 2017 national survey of VHA enrollees found that 20.2 percent of VHA enrollees lacked health coverage. Assuming that uninsured VHA enrollees incur costs proportionate to their share of the patient population, we apply the percent of uninsured VHA enrollees to the direct medical care spending to estimate that total VHA spending on care for the uninsured was $10.3 billion in 2017, all of which was federally funded (Appendix Table 1). This estimate may be an undercount if uninsured patients incur a larger share of costs relative to their share of the VHA patient population.

Appendix Table 1: Estimated Veterans Health Administration (VHA) Appropriations/Obligations Spent on Medical Care for the Uninsured, 2017 ($Billions)
VHA Appropriations for Direct Acute Medical Care Servicesa		$51.0
Percent of VHA Users with No Public or Private Health Insuranceb	20.2%
Estimated Direct Medical Care Spending for Uninsured		$10.3
NOTES: a Estimate of VHA appropriations expenditures devoted to direct medical care services is derived from final FY 2017 national VHA budget: inpatient care ($10.7 billion) + outpatient (ambulatory) care ($29.3 billion) + dental care ($1.0 billion) + mental health care ($6.1 billion) + prosthetics ($3.2 billion) + rehabilitation care ($0.7 billion)  = $51.0 billion. Final direct medical budget appropriations for inpatient and outpatient services includes those discretionary and mandatory obligations associated with medical services and community care. U.S. Department of Veteran Affairs. (2019). “Volume II Medical Programs and Information Technology Programs Congressional Submission FY 2019 Funding and FY 2020 Advance Appropriations.” http://www.va.gov/vetdata/Expenditures.asp. b Huang, G., Muz, B., Kim, S., & Gasper, J. (2018). “2017 Survey of Veteran Enrollees’ Health and Use of Health Care.” Westat. https://www.va.gov/HEALTHPOLICYPLANNING/SOE2017/VA_Enrollees_Report_Data_Findings_Report2.pdf. SOURCE: Authors’ estimate based on U.S. Department of Veterans Affairs expenditures data: http://www.va.gov/vetdata/Expenditures.asp.

 Medicaid Program. Apart from base payments paid to hospitals, the Medicaid program also makes supplemental payments to hospitals, some of which can be targeted to help pay for uncompensated care hospitals render to the uninsured.  As set out in a 2019 report by MACPAC, Medicaid makes two types of supplemental payments that are designed, at least in part, to support uncompensated care costs hospitals incurring in caring for the uninsured: disproportionate share hospital (DSH) payments and uncompensated care pool payments.³

Medicaid DSH payments.  Required by federal law, Medicaid DSH payments are intended to help hospitals that serve a high or disproportionate share of Medicaid and low-income patients. DSH payments can be used not only to cover the unpaid cost of caring for uninsured patients but also can help offset Medicaid shortfall—that is, the difference between a hospital’s cost of providing care to a Medicaid patient and the Medicaid payment received for providing care.  Within broad federal guidelines, states decide on what basis they allocate DSH payments among hospitals.

In 2017, Medicaid DSH payments to hospitals totaled $12.1 billion, with the federal share totaling $6.9 billion; the state share, $5.2 billion.⁴  To estimate what portion of these payments were available to help defray hospitals’ uncompensated care costs for the uninsured, we made several assumptions. First, we assumed that 50 percent of DSH payments went to cover uncompensated care costs for uninsured patients and 50 percent went to offset shortfalls in Medicaid base payments.  Limited information is available on how DSH funds are actually allocated. To our knowledge the most recent available information is 2019 work done by MACPAC which used 2014 DSH audit statements to examine on what basis DSH payments are distributed. MACPAC reported that nationally, in 2014, 69 percent of DSH hospital payments went to help offset the cost of caring for uninsured patients, and 31 percent went to cover Medicaid payment shortfall.⁵ Owing to the ACA coverage expansion, between 2014 and 2017, the number of uninsured declined while the number of Medicaid enrollees increased. Because of this decline, for this analysis we assumed that states adjusted their DSH allocations to account for these shifts in insurance coverage. If states in 2017 paid out less than 50 percent of Medicaid DSH payments to help defray uncompensated care costs, we overstate the availability of these payments to cover unpaid costs of uninsured patients.⁶ Alternatively, if states allocated more than 50% of their DSH payments to cover uncompensated care costs, we understate availability.

Second, we made assumptions about what share of Medicaid DSH payments represent new funding available to hospitals to help cover uncompensated care costs for the uninsured. For many years states have relied on provider taxes, inter-governmental transfers (IGTs), certified public expenditures (CPEs) and other financing mechanisms to finance their share of DSH payments rather than using revenue from state general funds, which is generally the source of funding for the state Medicaid share. Data collected by the US. General Accountability Office for state fiscal year 2012 (the most recently available information to our knowledge) found that, nationally, 63.9 percent of the state share of DSH payments used revenues from provider taxes, IGTs and similar funding types for financing; the balance of the state share (36.1 percent) of DSH payments was financed with state funds such as state general revenues.

To account for these alternative financing sources, we assumed that the state share of DSH payments raised by provider taxes, IGTs and like financing was the same in 2017 as it was in 2012. We further assumed that the state share of DSH payments financed with these alternative financing sources did not represent new funds to the hospitals. In many instances, hospitals supply the money to fund the alternative financing sources that states then used to pay the state share of DSH payments. In contrast, we assumed that the state share of the DSH payments financed with state general funds did represent new funds available to hospitals to help pay for the unpaid costs of caring for the uninsured. We similarly assumed that the entirety of the federal share of DSH payments represented new funding to hospitals available to defray the unpaid costs for the uninsured. Applying these assumptions, we estimate that $1.9 billion of the state share of DSH payments (.36 x $5.2 billion) in 2017 represents new funding to hospitals, of which 50 percent ($0.9 billion) went to help cover uncompensated care costs for the uninsured. Similarly, we estimate that 50 percent of the full federal share of DSH payments (half of $6.9 billion or $3.5 billion), were paid to hospitals to help cover uncompensated care costs for the uninsured (Appendix Table 2).  Combining the federal and state share we estimate that in 2017 $4.4 billion in Medicaid DSH payments were directed to hospitals with the goal of helping to defray the uncompensated care costs of the uninsured.

Appendix Table 2: Estimate of Medicaid Supplemental Payments Available to Fund Uncompensated Care Costs for Uninsured, 2017 ($Billions)
	Potentially Available Funding ($Billions)
	Federal	State/Local	Total
Estimated Medicaid Funding for Uninsured	$8.1	$1.7	$9.8
DSH Paymentsb	$3.5	$0.9	$4.4
UCC Pool Paymentsa	$4.6	$0.8	$5.4
NOTES: a MACPAC. (2019, March). “Medicaid Base and Supplemental Payments to Hospitals.” Note the link to this issue brief is no longer publicly available but formerly accessed at https://www.macpac.gov/wp-content/uploads/2018/06/Medicaid-Base-and-Supplemental-Payments-to-Hospitals.pdf; U.S. Government Accountability Office (GAO). (2014, July). “Medicaid Financing- States’ Increased Reliance on Funds from Health Care Providers and Local Governments Warrants Improved CMS Data Collection.” Report to Congressional Requesters. GAO-14-627. https://www.gao.gov/assets/670/665077.pdf. b Medicaid and CHIP Payment and Access Commission (MACPAC). (2018, December) “MACStats: Medicaid and CHIP Data Book.” https://www.macpac.gov/wp-content/uploads/2018/12/December-2018-MACStats-Data-Book.pdf; U.S. Government Accountability Office (GAO). (2019, July). “Medicaid- States’ Use and Distribution of Supplemental Payments to Hospitals.” Report to Congressional Requesters. GAO-19-603.  https://www.gao.gov/assets/710/700378.pdf;  GAO. (2014, July). “Medicaid Financing States’ Increased Reliance on Funds from Health Care Providers and Local Governments Warrants Improved CMS Data Collection.” Report to Congressional Requesters. https://www.gao.gov/assets/670/665077.pdf. SOURCE:  Authors’ estimates using secondary data sources.

 Medicaid Uncompensated Care Pool Payments. In fiscal year 2017, nine states supported uncompensated care pool payments through Medicaid Section 1115 demonstrations.⁷ Combined, $8.0 billion in pool payments were made in 2017 across the nine states, about $4.6 billion in federal funds and $3.4 billion in state funding.⁸ The specifics of how pool payments are made and on what basis vary state to state; California’s Global Payment Program (accounting for nearly half, $3.8 billion, of all pool payments in 2017), for example, supported payments to cover the uninsured costs of care with a particular emphasis on providing care in appropriate, cost-effective settings.

Similar to state financing of Medicaid DSH payments, a large part of the state share of uncompensated care pool payments is financed with funds from providers and local governments through provider taxes and IGTs. According to the U.S. General Accounting Office, nationally, providers and local governments provided 78 percent of the state share of non-DSH supplemental payments in 2012.⁹ Consistent with our adjustment for state use of alternative funding sources in financing DSH payments, we assumed that the state share of uncompensated care pool payments paid for with these alternative sources did not represent new funds to providers. We further assumed that the state share of uncompensated care pool payments (22 percent) financed with state funds did represent new funds to providers. We also assumed that the entirety of the federal share of uncompensated care pool payments represented new funding to providers. Applying these assumptions, we estimate that $0.8 billion of the state share of uncompensated care pool payments (.22 x $3.4 billion) in 2017 represents new funding to providers. Combining this with the full federal share of uncompensated care pool payments ($4.6 billion), we estimate that $5.4 billion in Medicaid uncompensated care payments were paid to providers to help cover the unpaid costs of the uninsured in 2017 (Appendix Table 2). Between Medicaid DSH and UCC payments, we estimate that Medicaid paid $9.8 billion to help cover the cost of caring for the uninsured, with $8.1 billion in federal funds and $1.7 billion in state funds.

State and Local Tax Programs and Public Assistance. State and local governments provide funds to cover some uncompensated care costs through subsidies to providers and funding of public assistance and indigent care programs. We estimate state and local tax expenditures and spending on public assistance that goes toward uncompensated care based on the National Health Expenditure Accounts (NHEA) for 2017. There is no comprehensive information available on how these funds were used or what share went toward care for the uninsured. Mirroring our previous work in this area, we assume that 50 percent of these funds support uncompensated care costs.

Specifically, we calculated state and local tax appropriations to cover the cost of uncompensated care for the uninsured based on funds reported as “Other state and local programs” that went toward the following services: hospital ($15.3 billion), physician and other clinical services ($0.08 billion), other professional services ($0.01 billion), and prescription drugs ($0.01 billion). We assume half of these total funds support uncompensated care, leading to an estimated $7.7 billion in payments made by state and local tax appropriations in 2017 (Appendix Table 3).

For state and local public assistance spending to cover the cost of uncompensated care for the uninsured we use funds reported as “general assistance” that went toward the following services: hospital ($2.6 billion), physician and other clinical services ($0.8 billion), other professional services ($0.1 billion), and prescription drugs ($0.9 billion). We assume half of these total funds supported uncompensated care costs, leading to an estimated $2.2 billion in state and local public assistance paid in 2017 (Appendix Table 3).

Appendix Table 3: Estimate of State and Local Tax Programs and Public Assistance Programs for Medical Care for Uninsured, 2017 ($Billions)
Estimated State/Local Spending on the Uninsured	$9.9
State/Local Tax Appropriations for Indigent Programs, 2017a	$7.7
State/Local Public Assistance Spending on the Uninsured, 2017b	$2.2
NOTES: a State and local appropriations for indigent programs reflect those public payments designated as “other state and local programs” including total hospital expenditures ($15.3 billion) + total physician and other clinician services expenditures, other professional services expenditures, and prescription drug expenditures (collectively amount to roughly $0.1 billion). Note that we assume that half of the public payments tied to these expenditures support uncompensated care. b State and local public assistance reflect those public payments designated as “general assistance” including total hospital expenditures ($2.6 billion) + total physician and other clinician services expenditures ($0.8 billion) + total other professional services expenditures ($0.1 billion) + total prescription drug expenditures ($0.9 billion). Note that we assume that half of the public payments tied to these expenditures support uncompensated care. SOURCE: U.S. Department of Health and Human Services Centers for Medicare and Medicaid Services National Health Expenditure Accounts (NHEA) CY 2017: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsHistorical.

 Indian Health Service. In 2017, the Indian Health Service (IHS) spent $3.4 billion providing direct medical care services to American Indians and Alaska Natives. This included spending on inpatient hospital services and services provided in health clinics (e.g., outpatient care and prescription drugs) as well as referred care services which supports the delivery of health care services not available in IHS-operated facilities. To estimate how much of this spending went to care for uninsured American Indians and Alaska Native, we deducted the $1.1 billion IHS received from third-party payers from total medical spending ($3.4 billion), and estimate that IHS spent $2.3 billion caring for the uninsured in 2017, all of which was federally funded (Appendix Table 4).

Appendix Table 4: Estimate of Indian Health Service Spending for Medical Care for Uninsured, 2017 ($Billions)
Estimated Appropriations Spent on Uninsured	$2.3
IHS Spending for Medical Care Services, 2017a	$3.4
Collections from Public and Private Insurance	<$1.1>
NOTE: a IHS spending for medical care services includes hospital and health clinic services (e.g., inpatient care, ambulatory care, labs, pharmacy, etc.), dental services, mental health, alcohol and substance abuse services, and purchased/referred care services. SOURCE: U.S. Department of Health and Human Services Indian Health Service FY 2019 Performance Budget Submission to Congress: https://www.ihs.gov/sites/budgetformulation/themes/responsive2017/display_objects/documents/FY2019CongressionalJustification.pdf.

Community Health Centers. Administrated by the federal government, the Community Health Center (CHC) program comprises 1,373 health centers which, nationwide, provided health care services to 27 million individuals. National program data report that CHCs spent $15.5 billion on direct medical care and other clinical care services (e.g., dental, mental health, and prescription drugs) in 2017.¹⁰ Patient program revenue data show that 16.9 percent of total annual charges in 2017 were attributed to self-paying patients.  Applying the share of charges attributed to self-pay patients to total spending on medical spending, we estimate that CHCs spent $2.6 billion in caring for the uninsured in 2017 (Appendix Table 5).  We then deducted total collections received from self-pay patients ($1.1 billion) and funding received from private grants and contracts for the uninsured ($0.2 billion) and estimate that CHCs spent $1.3 billion in direct care for the uninsured.

Finally, to estimate the share of CHC spending on the uninsured by type of funding source (federal, state, or local), we multiplied the estimated level of CHC spending on the uninsured ($1.3 billion) by the share of total CHC program spending by federal, state and local sources. In 2017, program data show that the federal government provided 64 percent of overall CHC program funding, and state and local governments 24 percent.¹¹ Applying these percentages to total estimated CHC spending on the uninsured, we estimate that the federal government paid $1.0 billion and federal and state and local governments $0.3 billion (Appendix Table 5).

Appendix Table 5: Estimated Community Health Centers Uncompensated Care Costs for Uninsured, 2017 ($Billions)
Estimated Uncompensated Care Spending on Uninsured		$1.3
Medical and Other Clinical Services Spendinga		$15.5
Share of Total CHC Spending for Self-Pay Patientsb	16.9%
Share of Medical and Other Clinical Services Spending for Self-Pay Patients		$2.6
Payments made by Self-Pay Patients		<$1.1>
Private Payments for Uninsuredc		<$0.2>
NOTES: a CHC medical costs for 2017 included medical care ($9.4 billion) and other clinical services ($6.1 billion). b CHC patient charges in 2017 totaled $27.7 billion, 16.9 percent ($4.3 billion) were incurred by self-pay patients. c Private payments includes funding from foundation/private grants and contracts. SOURCE: Bureau of Primary Health Care, HRSA, Uniform Data System, 2017 Health Center Data: https://bphc.hrsa.gov/uds2017/datacenter.aspx?q=tall&year=2017&state=.