Study

At the Intersection of Health, Health Care and Policy Cite this article as: Teresa A. Coughlin, John Holahan, Kyle Caswell and Megan McGrath An Estimated $84.9 Billion In Uncompensated Care Was Provided In 2013; ACA Payment Cuts Could Challenge Providers Health Affairs, 33, no.5 (2014):807-814 doi: 10.1377/hlthaff.2013.1068

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Health Care Costs By Teresa A. Coughlin, John Holahan, Kyle Caswell, and Megan McGrath 10.1377/hlthaff.2013.1068 HEALTH AFFAIRS 33, NO. 5 (2014): 807–814 ©2014 Project HOPE— The People-to-People Health Foundation, Inc.

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An Estimated $84.9 Billion In Uncompensated Care Was Provided In 2013; ACA Payment Cuts Could Challenge Providers

Teresa A. Coughlin ([email protected]) is a senior fellow at the Health Policy Center, Urban Institute, in Washington, D.C.

Millions of uninsured people use health care services every year. We estimated providers’ uncompensated care costs in 2013 to be between $74.9 billion and $84.9 billion. We calculated that in the aggregate, at least 65 percent of providers’ uncompensated care costs were offset by government payments designed to cover the costs. Medicaid and Medicare were the largest sources of such government payments, providing $13.5 billion and $8.0 billion, respectively. Anticipating fewer uninsured people and lower levels of uncompensated care, the Affordable Care Act reduces certain Medicare and Medicaid payments. Such cuts in government funding of uncompensated care could pose challenges to some providers, particularly in states that have not adopted the Medicaid expansion or where implementation of health care reform is proceeding slowly. ABSTRACT

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illions of uninsured Americans use health care services every year. Since care tends to be costly, and the vast majority of uninsured people have limited financial means, many uninsured people often cannot pay their medical expenses.1 Recognizing the need for and the importance of health care, providers that care for the uninsured without financial compensation, and governments at the federal, state, and local levels have long provided support—financial and otherwise—to help defray the costs of caring for the uninsured. For example, the federal government provides substantial funding for the approximately 1,200 community health centers located across the country. It also helps cover uncompensated care costs with Medicare and Medicaid disproportionate-share hospital (DSH) payments, which are designed to partially offset hospitals’ costs associated with caring for the uninsured and other vulnerable populations. The Affordable Care Act (ACA) is fundamentally reshaping the nation’s health care landscape,

John Holahan is an institute fellow at the Urban Institute Health Policy Center. Kyle Caswell is a research associate at the Urban Institute Health Policy Center. Megan McGrath is a research assistant at the Urban Institute Health Policy Center.

particularly in terms of how care is delivered to the low-income uninsured and how that care is financed. Chief among the ACA’s provisions is the expansion of eligibility for Medicaid, in which states can choose to cover people who have incomes of up to 138 percent of the federal poverty level. The ACA also provides subsidies for people with incomes below 400 percent of poverty to purchase health insurance and establishes health insurance exchanges, known as Marketplaces, through which people can obtain coverage. Over the next decade an estimated twenty-five million people will gain health insurance through the ACA.2 To help cover the costs of this significant expansion of insurance coverage, the federal government is providing an estimated $1.3 trillion between 2013 and 2023.3 However, some of the new spending associated with the ACA will be offset by reductions in providers’ uncompensated care costs. Anticipating that there will be fewer uninsured people and less uncompensated care in the future, the ACA reduces federal Medicare DSH payments beginning in 2014 and MedMay 2 014

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Health Care Costs icaid DSH payments beginning in 2016. With the expansion of coverage under the ACA, state and local governments could also realize savings. Many of these governments currently support health care services and programs for the uninsured.With the higher levels of coverage expected under reform, the need for such support is likely to diminish. Building on earlier work, we estimated the costs associated with uncompensated care provided to the nonelderly uninsured in 2013 using two alternative approaches.4 We also examined how uncompensated care is distributed across health care providers and investigated the sources of funding currently available in the health care system to help defray providers’ uncompensated care costs. Finally, we explored the extent to which private health insurance dollars are used to cover the health care costs of the uninsured.

Study Data And Methods Because of the many assumptions we made, we checked our findings by estimating the costs of uncompensated care in two ways.5 For the first estimate, we used data from the Medical Expenditure Panel Survey (MEPS). For the second, we used published secondary data from health care providers and government sources. MEPS Data MEPS is a nationally representative household survey of the US civilian noninstitutionalized population. It collects detailed information on health insurance status and medical care use by month, as well as medical expenditures by source.6 To obtain more precise uncompensated care estimates, we pooled MEPS data for 2008, 2009, and 2010. Given that most elderly people in the United States have Medicare coverage, we limited our analysis to respondents ages sixty-four and younger. The final study sample contained 86,047 respondent-year observations. ▸ ADJUSTMENTS TO THE DATA : We made several adjustments to the MEPS data. First, we adjusted for the acknowledged level of expenditure differences between MEPS and National Health Expenditure Accounts (NHEA) data, which are widely viewed as a full accounting of national health care expenditures.7,8 Based on work by Merrile Sing and coauthors,7 we also inflated expenditures in MEPS by payer category (private insurance, Medicare, Medicaid, and other) to more accurately represent aggregate US medical expenditures as presented in the NHEA.9 To project uncompensated care costs for 2013, we made two additional adjustments. The first adjusted for population growth, and the second 808

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adjusted for the change in per capita medical expenditures that occurred between 2008 and 2013.9 ▸ ESTIMATING UNCOMPENSATED CARE : One important distinction between the NHEA and MEPS is that MEPS data do not include implicitly subsidized care, defined here as care provided to the uninsured but paid for by a source that cannot be directly linked to an individual patient, such as a Medicaid DSH payment. Nonetheless, we were able to estimate the amount of implicitly subsidized care using MEPS data. We compared two amounts: the average payment that a provider would have expected to receive from an uninsured patient if the person had had private insurance, and the payment the provider actually received from the uninsured patient. The difference was our estimate of implicitly subsidized care. We defined total uncompensated care costs as the costs associated with implicitly subsidized care plus expenditures from indirect sources made on behalf of the uninsured. These indirect sources, which we refer to as other private, public, and unclassified sources, included a range of payers such as the Department of Veterans Affairs, the Indian Health Service, and local and state health departments, as well as automobile and homeowners’ insurance. We did not include spending from the MEPS expenditure category “other public,” which is sometimes linked to uninsured people,10 in the calculation of implicitly subsidized care. We excluded that spending because this category represents Medicaid expenditures that in theory should not exist, since they are for people who report that they are uninsured. The fact that we found some Medicaid expenditures in periods during which people claimed that they had no insurance may reflect providers’ presumptive determination of Medicaid eligibility or respondents’ errors in reporting their insurance status. Limitations There are acknowledged limitations to our analysis, including the several adjustments we made to the MEPS data to estimate uncompensated care costs. To the extent that our adjustments were incorrect, our estimates are also incorrect. In addition, because MEPS data are largely based on self-reported data, our estimates, like all survey-based research, had associated biases and shortcomings. The data sources we used to produce the second estimate did not include uncompensated care provided by office-based nonphysician health care providers such as dentists and optometrists, as well as prescription drugs and medical supplies and devices.11,12 Furthermore, because of data limitations we made some admittedly crude assumptions about

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the shares of government-sponsored community-based providers’ budgets that were spent on care for the uninsured. For many of these providers we assumed that this share was equal to the level of uninsurance in the overall population. However, insured people generally have more options on where to get health care than the uninsured do. Therefore, this assumption likely underestimated what share of these providers’ budgets was spent on the uninsured.

Study Results Estimate Based On MEPS ▸ PER CAPITA UNCOMPENSATED CARE COSTS : Medical spending in 2013 for all uninsured people totaled a projected $2,876 per person (Exhibit 1). The single largest source of payment was implicitly subsidized care; the secondlargest was indirect payments made by other private, public, and unclassified sources. Combining those two sources, we estimated that uncompensated care spending for the uninsured was $1,257 per person in 2013, or 44 percent of the total per capita medical spending for this population. For the full-year uninsured, the same two sources were the largest: implicitly subsidized care was $1,005 per person, and indirect payments were $697 per person (Exhibit 1). Together they accounted for 70 percent of the total per

capita medical spending ($2,443). Not surprisingly, most health care costs for part-year uninsured people occurred during periods when they had insurance: $2,878 per person, or 84 percent of the total (Exhibit 1). Private insurance and Medicaid together contributed 77 percent of per capita spending during the time respondents reported being insured. For the period when these people were uninsured, medical spending was just $561 per person. As we expected, medical spending for people with insurance for the entire year was much higher than that for the uninsured. Per person spending among the full-year insured was $4,876 per person (Exhibit 1)—about 70 percent higher than that for all uninsured per capita. ▸ AGGREGATE UNCOMPENSATED CARE COSTS : We estimated that aggregate uncompensated care spending for all uninsured in 2013 totaled $84.9 billion (Exhibit 2). Nearly two-thirds of that was implicitly subsidized uncompensated care. Uncompensated care for the uninsured accounted for 70 percent of their total medical expenditures ($121.0 billion) in 2013 (Exhibit 2). Eighty-five percent of uncompensated care ($72.0 billion) for the uninsured was for those who were uninsured for the full year. Estimate Based On Provider And Government Data The data we used to produce our second estimate of uncompensated care costs

Exhibit 1 Projected 2013 Per Capita Medical Spending, By Insurance Status And Source Of Payment Among The Nonelderly Part-year uninsuredc

Total spending All direct sources Out-of-pocket Private insurance Medicare Medicaid Other publice All indirect sources Implicitly subsidized Other private, public, and unclassified sourcesf

All uninsureda

Full-year uninsuredb

All year

While insured

While uninsured

Full-year insuredd

$2,876 1,619 490 559 24 411 136

$2,443 740 500 0 0 0 240

$3,439 2,762 476 1,286 56 944 0

$2,878 2,601 315 1,286 56 944 0

$561 162 162 0 0 0 0

$4,876 4,644 610 2,966 343 725 0

1,257 653

1,702 1,005

677 195

278 0

399 195

232 0

604

697

482

278

204

232

SOURCE Authors’ analysis of data from the Medical Expenditure Panel Survey (MEPS) pooled from 2008, 2009, and 2010. NOTE All indirect sources represent uncompensated care. aSample size: 26,419; estimated 2013 population: 72,180,997. bSample size: 15,627; estimated 2013 population: 40,799,801. cSample size: 10,792; estimated 2013 population: 31,381,196. dSample size: 57,979; estimated 2013 population 196,400,000. eCorresponds to the MEPS expenditure category “other public,” which are Medicaid payments for respondents who reported zero months of Medicaid coverage. fIncludes the following MEPS expenditure categories: other private (including expenditures from private insurance companies reporting no private coverage), Department of Veterans Affairs, TRICARE, other federal (including expenditures on behalf of the Indian Health Service and military treatment facilities), other state and local (including expenditures on behalf of community clinics, local and state health departments, and state programs other than Medicaid), workers’ compensation, and other unclassified sources (including automobile and homeowner’s insurance and other unknown sources).

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Health Care Costs Exhibit 2 Projected 2013 Aggregate Medical Expenditures For The Nonelderly Uninsured, By Source Of Payment In Billions Of Dollars

Uncompensated care expenditures Implicitly subsidized Other private, public, and unclassified sourcesa Out-of-pocket expenditures Other publicb Total expenditures

All uninsured

Full-year uninsured

Part-year uninsured

$ 84.9 49.0 35.9 25.8 10.3 121.0

$ 72.0 42.7 29.3 20.6 10.3 102.9

$12.9 6.3 6.6 5.1 0.0 18.1

SOURCE Authors’ analysis of data from the Medical Expenditure Panel Survey (MEPS) pooled from 2008, 2009, and 2010. NOTES Per capita expenditures in Exhibit 1 were calculated only for respondents with twelve months of health insurance data, whereas aggregate expenditures in Exhibit 2 were calculated for all respondents. As a result, the aggregate estimates are larger than the per capita estimates multiplied by their respective population size. aIncludes the MEPS expenditure categories listed in Exhibit 1, footnote f. bCorresponds to the MEPS expenditure category “other public,” which are Medicaid payments for respondents who reported zero months of Medicaid coverage.

allowed us to explore other features of uncompensated care that could not be investigated with MEPS data: namely, how the burden of uncompensated care was divided among providers, and what funding sources in the health care system help pay for uncompensated care. Our second estimate of uncompensated care costs in 2013 was $74.9 billion (Exhibit 3). This is

Exhibit 3 Projected Uncompensated Care Costs In 2013, By Place Of Service, Billions Of Dollars Place of service All places Hospitala Communityb Publicly supported Office-based physicians

Uncompensated care costs $74.9 44.6 30.3 19.8 10.5

Percent of costs 100.0 59.5 40.5 26.4 14.0

SOURCE Authors’ analysis of items in exhibit footnotes. NOTE Percentages may not sum to totals because of rounding. aAmerican Hospital Association. Underpayment by Medicare and Medicaid (Note 16 in text). b(1) Department of Veterans Affairs. Expenditures [Internet]. Washington (DC): VA; [updated 2014 Jan 23; cited 2014 Mar 19]. Available from: http://www.va.gov/vetdata/ Expenditures.asp. (2) Department of Health and Human Services. Indian Health Service FY 2013 performance budget submission. Washington (DC): HHS; 2012. (3) Health Resources and Services Administration. Ahead of the curve: the Ryan White HIV/AIDS Program progress report 2012 [Internet]. Rockville (MD): HRSA; 2012 Nov [cited 2014 Mar 19]. Available from: http:// hab.hrsa.gov/data/reports/progressreport2012.pdf. (4) Kaiser Family Foundation. Insurance status of AIDS Drug Assistance Program (ADAP) clients, 2011. Menlo Park (CA): KFF; 2011. (5) Health Resources and Services Administration. FY 12 Part A allocations report for total Part A grantees [Internet]. Rockville (MD): HRSA; 2013 Apr 13 [cited 2014 Mar 19]. Available from: http://hab.hrsa.gov/data/reports/files/fy12partaallocations.pdf. (6) Health Resources and Services Administration. FY12 allocation report for all grantees [Internet]. Rockville (MD): HRSA; 2013 Apr 13 [cited 2014 Mar 19]. Available from: http://hab.hrsa.gov/data/reports/files/ fy12partballocations.pdf. (7) Bureau of Primary Health Care. Uniform data system, national rollup report. Rockville (MD): Health Resources and Services Administration; 2011. (8) Health Resources and Services Administration. HRSA Title V Information System (TVIS), FY 2011 [Internet]. Rockville (MD): HRSA; [cited 2014 Mar 31]. Available from: https://mchdata.hrsa.gov/ tvisreports/special/fin06_special_result.aspx.

810

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12 percent lower than the $84.9 billion we estimated using MEPS data (Exhibit 2). The lower estimate likely reflects the fact that we excluded information from known sources of uncompensated care, such as the costs of drugs provided to the uninsured at no charge by some pharmaceutical companies and uncompensated care provided by dentists and providers of medical devices and supplies.11,12 The difference between the two estimates also likely reflects the conservative assumptions we made about uncompensated care provided by publicly supported providers such as the Department of Veterans Affairs and the Indian Health Service. For uncompensated care supported by these public programs, we assumed that the uninsured used care proportionate to their share of the overall population. In reality, however, the insured have access to other providers and probably use publicly supported providers only occasionally. Thus, we likely underestimated the level of uncompensated care that these publicly supported providers render to the uninsured. Uncompensated Care By Place Of Service We estimated that $44.6 billion of the $74.0 billion in uncompensated care spending was provided by hospitals (Exhibit 3). The balance came from community-based providers, both those that received public funds and office-based physicians who provided in-kind services or charity care. Government Programs That Fund Uncompensated Care ▸ MEDICAID : Medicaid makes two major types of payments that help fund the cost of uncompensated care. The first are DSH payments. The second are upper payment limit (UPL) payments, which states have the option of making to a range of providers. We relied on government sources to estimate Medicaid DSH and UPL payments and then made several adjustments. The preliminary 2013 Medicaid DSH allocation was $11.5 billion, from which we eliminated DSH payments made to mental hospitals because of our focus on uncompensated care related to acute care instead of long-term care—which is the type of care typically provided by mental hospitals.13 We then calculated the state share of DSH payments based on the average federal matching rate of 59.6 percent in 2013. But in many cases, states’ share of DSH payments are not paid by the states. In fact, the vast majority of the state DSH and UPL payments are financed through taxes on providers, intergovernmental transfers made by providers, and certified public expenditures that are often paid for by providers.14 We considered only DSH payments financed with state general funds and the federal share of DSH payments as

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being available to hospitals to fund uncompensated care.We estimated that $11.1 billion in Medicaid DSH payments was available to acute care hospitals to help cover their uncompensated care costs in 2013. The federal share of these payments was estimated at $9.6 billion, and the state share at $1.5 billion. Medicaid administrative data for 2011 reported that UPL payments for inpatient and outpatient hospital care totaled $22.1 billion.15 Following our method for DSH, we counted the full federal share of UPL payments but only the state share of the payments that were financed with state general funds.We then used NHEA hospital data to inflate UPL payments to 2013. We estimated that the UPL payments available to fund hospitals’ uncompensated care for the uninsured totaled $16.1 billion in 2013, of which approximately $14.3 billion was federal funds and $1.7 billion was state funds. In a final step to estimate the level of Medicaid funding potentially available to hospitals for uncompensated care, we subtracted a portion of DSH and UPL payments because some of these payments implicitly compensate some hospitals for low Medicaid payment rates. The American Hospital Association estimated Medicaid underpayments in 2012 at $13.7 billion.16 Distributing this between federal and state Medicaid shares, we estimated $12.1 billion in federal underpayments and $1.6 billion in state underpayments, which we subtracted from the estimated DSH and UPL payments to account for the Medicaid underpayments. Thus, the total Medicaid payments for uncompensated care in 2013 were $13.5 billion (Exhibit 4). ▸ MEDICARE : Medicare also provides support for uncompensated care through DSH payments. In addition, Medicare makes indirect medical education (IME) payments to teaching hospitals to support care for the uninsured, among other things. Medicare DSH payments can be attributed to care for the uninsured because they are made to hospitals that treat a large number of low-income patients. However, the Medicare Payment Advisory Commission (MedPAC) maintains that the distribution of DSH payments is not aligned with the concentration of uncompensated care, and thus not all of the payments go to support uncompensated care.17 For this reason, we assumed that only half of the 2013 estimated Medicare DSH payments (about $5.7 billion) went to cover uncompensated care for the uninsured.18 We also assumed that some IME payments served the uninsured. Again, because the relationship between the concentration of the uninsured and IME payments has been found to be weak, we estimated that only one-third of IME

payments ($2.3 billion) went to fund care for the uninsured.18 Our estimate of the total Medicare DSH and IME payments available to support uncompensated care in 2013 was $8.0 billion (Exhibit 4). ▸ OTHER FEDERAL PROGRAMS : We included uncompensated care funding provided by several other federally funded programs. These programs were the Department of Veterans Affairs, community health centers, the Indian Health Service, the Ryan White HIV/AIDS Program, and Maternal and Child Health Title V block grants (Exhibit 4).

Exhibit 4 Projected Publicly Financed Uncompensated Care In 2013, By Program Type And Funding Source, Billions Of Dollars All sources

Federal ($) 32.8a

State or local ($) 19.8b

Dollars 52.6

Medicaid (DSH and UPL)c Medicare (DSH and IME)e Department of Veterans Affairsf Community health centersg Indian Health Serviceh Ryan Whitei MCH Title V block grantj

11.8 8.0 8.1 1.9 2.1 0.9 —d

1.6 —d —d 0.8 —d 0.2 0.1

13.5 8.0 8.1 2.7 2.1 1.1 0.1

25.7 15.2 15.4 5.1 4.0 2.1 0.2

State and local programsk Indigent health programs Public assistant programs

—d —d

9.8 7.3

9.8 7.3

18.6 13.9

Program All

Percent 100.0

Federal programs

SOURCE Authors’ analysis of items in exhibit footnotes. NOTES DSH is disproportionate-share hospital payments. UPL is upper payment limit payments. IME is indirect medical education payments. Ryan White is the Ryan White HIV/AIDS Program. MCH is maternal and child health block grant programs. a63.5 percent. b36.5 percent. c(1) Centers for Medicare and Medicaid Services. Medicaid program; Disproportionate Share Hospital allotments and institutions for mental diseases, Disproportionate Share Hospital limits for FY 2012, and preliminary FY 2013 Disproportionate Share Hospital allotments and limits (Note 13 in text). (2) Centers for Medicare and Medicaid Services. Medicaid financial management report: FY 2011 [Internet]. Baltimore (MD): CMS; [cited 2014 Mar 19]. Available for download from: http://medicaid.gov/MedicaidCHIP-Program-Information/By-Topics/Data-and-Systems/MBES/Downloads/FY02throughFY11Net Expenditure.zip. dNot applicable. eCongressional Budget Office. March 2012 Medicare baseline [Internet]. Washington (DC): CBO; 2012 Mar 13 [cited 2014 Mar 19]. Available from: http://www .cbo.gov/sites/default/files/cbofiles/attachments/43060_Medicare.pdf. fDepartment of Veterans Affairs. Expenditures [Internet]. Washington (DC): VA; [updated 2014 Jan 23; cited 2014 Mar 19]. Available from: http://www.va.gov/vetdata/Expenditures.asp. gBureau of Primary Health Care. Uniform data system, national rollup report. Rockville (MD): Health Resources and Services Administration; 2011. hDepartment of Health and Human Services. Indian Health Service FY 2013 performance budget submission. Washington (DC): HHS; 2012. i(1) Health Resources and Services Administration. Ahead of the curve: the Ryan White HIV/AIDS Program progress report 2012 [Internet]. Rockville (MD): HRSA; 2012 Nov [cited 2014 Mar 19]. Available from: http:// hab.hrsa.gov/data/reports/progressreport2012.pdf. (2) Kaiser Family Foundation. Insurance status of AIDS Drug Assistance Program (ADAP) clients, 2011. Menlo Park (CA): KFF; 2011. (3) Health Resources and Services Administration. FY 12 Part A allocations report for total Part A grantees [Internet]. Rockville (MD): HRSA; 2013 Apr 13 [cited 2014 Mar 19]. Available from: http://hab.hrsa.gov/data/reports/files/fy12partaallocations.pdf. (4) Health Resources and Services Administration. FY12 allocation report for all grantees [Internet]. Rockville (MD): HRSA; 2013 Apr 13 [cited 2014 Mar 19]. Available from: http://hab.hrsa.gov/data/reports/files/ fy12partballocations.pdf. jHealth Resources and Services Administration. HRSA Title V Information System (TVIS), FY 2011 [Internet]. Rockville (MD): HRSA; [cited 2014 Mar 31]. Available from: https://mchdata.hrsa.gov/tvisreports/special/fin06_special_result.aspx. kCenters for Medicare and Medicaid Services. Table 19: National health expenditures by type of expenditure and program, calendar year 2011. Baltimore (MD): CMS; 2011.

M ay 20 1 4

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Health A ffairs

811

Health Care Costs

65

◀ %

Offset

In the aggregate, at least 65 percent of providers’ uncompensated care costs were offset by government payments designed to cover these costs.

812

▸ STATE AND LOCAL GOVERNMENTS : Through public assistance and indigent care programs, state and local governments also pay for services provided to the uninsured. These governments also allocate tax revenues directly to hospitals and clinics to help the institutions care for the uninsured. Data on state and local spending are published by the Centers for Medicare and Medicaid Services (CMS) Office of the Actuary.19 In 2011 these data showed that state and local medical care spending was $20.9 billion, with $18.1 billion going to hospitals.19 Many of these payments are not specifically earmarked for uncompensated care. However, they are targeted to public hospitals, which suggests that the bulk of the funding is intended for that purpose. We assumed that half of these payments were used to support hospitals’ uncompensated care. This produced an estimate of $9.1 billion in 2011, or $9.8 billion when inflated to 2013 (Exhibit 4). CMS reported that state and local government public assistance programs spent $6.7 billion on medical care in 2011.19,20 We estimated that when expenditures are inflated to 2013 dollars, these public assistance programs supported $7.3 billion in uncompensated care (Exhibit 4). ▸ ALL PROGRAMS : Overall, we estimated that government payments for uncompensated care totaled $52.6 billion in 2013 (Exhibit 4). This accounted for 62.0–70.2 percent of what we estimated was spent on uncompensated care in 2013. The difference between our two estimates of total uncompensated care and the funds available was $22.3 billion and $32.3 billion. Some of this difference was covered by in-kind contributions by physicians, which we estimated to be $10.5 billion (Exhibit 3). Some was covered by philanthropy, although the level of this was difficult to ascertain. The Role Of Private Insurance Most of the rest of the uncompensated care was presumably paid for by private insurance. If we assume that our first estimate of uncompensated care costs, $84.9 billion, is the stronger of the two estimates, subtracting the estimated $52.6 billion in government payments and the $10.5 billion in physicians’ in-kind contributions leaves an estimated $21.8 billion to be financed by private insurance. Given that private insurance expenditures in 2013 were estimated to be $925.2 billion, however, the amount potentially associated with cost shifting through increased premiums and other similar strategies represented only about 2.4 percent of private health insurance costs.20 To the extent that targeting of government uncompensated care funding is imprecise—resulting in the overpaying of some providers and the underpaying of others—the level of private insurance

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spending could be higher. We recognize that some hospitals with substantial market power have the ability to negotiate higher payments from insurers in response to increases in the uncompensated care that these hospitals may provide. The prime example of this is major teaching hospitals, which generally have a dominant role in local markets. But MedPAC data have shown that major teaching hospitals tend to have lower private-payment-tocost ratios, higher percentages of overall costs accounted for by uncompensated care, and lower total margins compared to other hospitals.19,21 Thus, some of these teaching hospitals may be able to increase payments when necessary, but they do not seem to exercise this power in a major way. We also acknowledge that the financial arrangements between hospitals and health plans are generally unique and confidential and thus not public information; in addition, they almost certainly vary widely. For example, it could be the case that in some highly competitive markets, a hospital would absorb uncompensated care costs as a loss and implement cost-cutting measures in response, whereas in other markets, a health plan would pay for the care, ultimately passing its costs on to subscribers through higher premiums.

Discussion In this study we used MEPS data to estimate providers’ uncompensated care for the uninsured in the US health care system at $84.9 billion in 2013. Using secondary data from government and provider sources, we produced a second estimate of $74.9 billion. For reasons described above, we believe that the lower estimate understated uncompensated care in 2013 and that the $84.9 billion estimate is more accurate. Providers incur significant costs in caring for the uninsured. However, the bulk of their costs are compensated through a web of complex funding streams that are financed largely with public dollars. We estimated that in the aggregate, at least 65 percent of providers’ uncompensated care costs were offset by government payments designed to cover these costs. Importantly, however, our analysis examined providers’ uncompensated care costs and sources of funding overall, not at the individual provider level. It has long been recognized that the targeting of programs that fund uncompensated care is not perfectly aligned with each provider’s uncompensated care.22,23 As a result, some providers likely incur costs caring for the uninsured

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for which they receive little or no compensation. Indeed, important provisions in the ACA call for improved targeting of Medicaid and Medicare DSH payments to hospitals. Our analysis shows that the federal government is the largest funder of uncompensated care, providing more than 60 percent of the available funding. Through DSH and UPL payments, we estimated that Medicaid provided more than 25 percent of total available public funds to cover uncompensated care costs—far surpassing the levels of other funding streams. The Medicare program, through both DSH and IME payments, is also a major funder of uncompensated care. Combined, Medicaid and Medicare payments accounted for an estimated 40.9 percent of uncompensated care funding in 2013. Given the importance of the Medicare and Medicaid payments in helping to defray providers’ uncompensated care costs, it will be critical to monitor how the ACA-mandated cutbacks in DSH funding will affect hospitals—which, according to our cost estimates, provided about 60 percent of uncompensated care in 2013. The ACA is expected to reduce the number of people who receive uncompensated care, and thus it reduces Medicare and Medicaid DSH funding. By 2019 Medicaid DSH payments are projected to be cut about 50 percent over baseline projections and Medicare DSH payments to be cut 28 percent.24,25 The rationale for reducing DSH funding may be sound. Nonetheless, hospitals and consumer advocates have expressed concerns about how the cutbacks will affect hospitals, particularly considering the 2012 Supreme Court decision26 that made the expansion of Medicaid coverage optional for states under the ACA, and given the fact that twenty-five states are not moving forward with or still debating the option.27 The coverage gains from the Medicaid expansion will therefore be less than initially projected by the federal government. As a result, hospitals will likely have a higher level of uncompensated care

than had been projected after the enactment of health care reform. Worries about general ACA rollout—for example, lower-than-expected enrollment in some Marketplaces and high-deductible and narrownetwork plans have raised further concerns among hospitals about the reduction in funding for uncompensated care. With the planned cuts in DSH funding, some hospitals could respond by reducing the level of uncompensated care they provide or adopting more aggressive billing practices for the uninsured. State and local governments could similarly reduce their considerable funding of uncompensated care for the indigent, which we estimated to account for more than 30 percent of overall government funding for uncompensated care. Relying on the same logic that the federal government used to reduce Medicare and Medicaid DSH funding, state and local governments could argue that providers will need less funding for uncompensated care because more uninsured people will gain coverage through Medicaid, the health insurance Marketplaces, or other channels. The benefits from the coverage expansion, however, will vary widely across states and even within states.

Conclusion Most of the ACA’s provisions took effect in January 2014, and the nation’s health care environment is in a state of flux. Major policy changes that affect both the overall level of public and private insurance coverage and uncompensated care funding are imminent. 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 policy makers, providers, and consumer advocates to monitor how these many changes affect the provision of uncompensated care for uninsured people—a group expected to number thirty million in 2017.28 ▪

This research was completed as part of a project for the Kaiser Commission on Medicaid and the Uninsured, Kaiser Family Foundation.

NOTES 1 Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, Office of Health Policy. The value of health insurance: few of the uninsured have adequate resources to pay potential hospital bills.

Washington (DC): HHS; 2011. 2 Congressional Budget Office. Table 1: CBO’s May 2013 estimate of the effects of the Affordable Care Act on health insurance coverage [Internet]. Washington (DC): CBO; 2013 [cited 2014 Mar 19]. Available from:

http://www.cbo.gov/sites/default/ files/cbofiles/attachments/439002013-05-ACA.pdf 3 Congressional Budget Office. Table 2: CBO’s May 2013 estimate of the budgetary effects of the insurance coverage provisions contained

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in the Affordable Care Act [Internet]. Washington (DC): CBO; 2013 [cited 2014 Mar 19]. Available from: http:// www.cbo.gov/sites/default/files/ cbofiles/attachments/43900-201305-ACA.pdf Hadley J, Holahan J, Coughlin T, Miller D. Covering the uninsured in 2008: current costs, sources of payment, and incremental costs. Health Aff (Millwood). 2008;27(5):w399– 415. DOI: 10.1377/hlthaff.27.5.w399. Because of changes in data and methods, readers should not draw comparisons between 2008 and 2013 estimates. For details on our methods and data, see Coughlin TA, Holahan J, Caswell K, McGrath M. Uncompensated care for the uninsured in 2013: a detailed examination. Washington (DC): Kaiser Commission on Medicaid and the Uninsured; forthcoming. Agency for Healthcare Research and Quality, Center for Financing, Access, and Cost Trends. MEPS HC138, 2010 full year consolidated data file [Internet]. Rockville (MD): AHRQ; 2012 Sep [cited 2014 Mar 12]. Available from: http:// meps.ahrq.gov/mepsweb/data_ stats/download_data/pufs/h138/ h138doc.pdf Sing M, Banthin JS, Selden TM, Cowan CA, Keehan SP. Reconciling medical expenditure estimates from the MEPS and NHEA, 2002. Health Care Financ Rev. 2006;28(1):25–40. Bernard D, Cowan C, Selden T, Cai L, Catlin A, Heffler S. Reconciling medical expenditure estimates from the MEPS and NHEA, 2007. Medicare Medicaid Res Rev. 2012;2(4): E1–20. Centers for Medicare and Medicaid Services. National health expenditure projections 2011–2021 [Internet]. Baltimore (MD): CMS; 2011 [cited 2014 Mar 12]. Available from: http://www.cms.gov/ResearchStatistics-Data-and-Systems/ Statistics-Trends-and-Reports/ NationalHealthExpendData/ Downloads/Proj2011PDF.pdf Among the 15,627 respondents not reporting any health insurance during the year, 1,584 had “other public” expenditures. For documentation on “other public” expenditures, see Agency for Healthcare Research and Quality. MEPS HC-138: 2010 full year consolidated data file [Internet]. Rockville (MD): AHRQ; 2012 Sep [cited 2014 Mar 19]. Available from: http://meps.ahrq.gov/meps web/data_stats/download_data/ pufs/h138/h138doc.pdf

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11 MedShare. Medical product donations: corporate product donations [Internet]. Decatur (GA): MedShare; [cited 2014 Mar 19]. Available from: http://www.medshare.org/services/ medical-product-donations 12 Welvista. 2011 Welvista statistics [Internet]. Columbia (SC): Welvista; [cited 2014 Mar 19]. Available from: http://www.welvista.org/ 13 Centers for Medicare and Medicaid Services. Medicaid program; Disproportionate Share Hospital allotments and institutions for mental diseases Disproportionate Share Hospital limits for FY 2012, and preliminary FY 2013 Disproportionate Share Hospital allotments and limits. Federal Register [serial on the Internet]. 2013 Jul 26 [cited 2014 Mar 13]. Available from: http:// www.gpo.gov/fdsys/pkg/FR-201307-26/pdf/2013-17965.pdf 14 Coughlin TA, Zuckerman S, McFeeters J. Restoring fiscal integrity to Medicaid financing? Health Aff (Millwood). 2007;26(5): 1469–80. 15 Centers for Medicare and Medicaid Services. Financial management report for FY 2011. CMS-64 Quarterly Expense Report. Baltimore (MD): CMS; 2011. Available from: http:// medicaid.gov/Medicaid-CHIPProgram-Information/By-Topics/ Data-and-Systems/MBES/ Downloads/FY02throughFY11Net Expenditure.zip 16 American Hospital Association. Underpayment by Medicare and Medicaid: fact sheet, 2014 [Internet]. Chicago (IL): AHA; [cited 2014 Mar 10]. Available from: http://www .aha.org/content/14/2012medicare-med-underpay.pdf 17 Medicare Payment Advisory Commission. Report to the Congress: Medicare payment policy. Washington (DC): MedPAC; 2007 Mar. 18 Congressional Budget Office. March 2012 Medicare baseline [Internet]. Washington (DC): CBO; 2012 Mar [cited 2014 Mar 13]. Available from: http://www.cbo .gov/sites/default/files/cbofiles/ attachments/43060_Medicare.pdf 19 Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group. Exhibit 1: National health expenditures by type of expenditure and program, calendar year 2011 [Internet]. Baltimore (MD): CMS; [cited 2014 Mar 31]. Available from: http:// www.cms.gov/Research-StatisticsData-and-Systems/Statistics-Trendsand-Reports/NationalHealth

ExpendData/Downloads/dsm-11.pdf 20 Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group. National Health Expenditure projections 2011–2021 [Internet]. Baltimore (MD): CMS; [cited 2014 Mar 17]. Table 3. Available from: http://www.cms.gov/ResearchStatistics-Data-and-Systems/ Statistics-Trends-and-Reports/ NationalHealthExpendData/ Downloads/Proj2011PDF.pdf 21 Medicare Payment Advisory Commission. A data book: health care spending and the Medicare program. Washington (DC): MedPAC; 2013 Jun. 22 Medicare Payment Advisory Commission. Report to the Congress: Medicare payment policy. Washington (DC): MedPAC; 2007 Mar. 23 Government Accountability Office. Medicaid: more transparency of and accountability for supplemental payments are needed [Internet]. Washington (DC): GAO; 2012 Nov [cited 2014 Mar 19]. Available from: http://www.gao.gov/assets/660/ 650322.pdf 24 Foster RS. Estimated financial effects of the “Patient Protection and Affordable Care Act,” as amended [Internet]. Baltimore (MD): Centers for Medicare and Medicaid Services; 2010 Apr 22 [cited 2014 Mar 13]. Available from: http://graphics8 .nytimes.com/packages/pdf/health/ oactmemo1.pdf 25 Congressional Budget Office. Letter to the Hon. Nancy Pelosi [Internet]. Washington (DC): CBO; 2010 Mar 18. Table 5. [cited 2014 Mar 13]. Available from: http://www.cbo .gov/sites/default/files/cbofiles/ attachments/hr4872_0.pdf 26 National Federation of Independent Business v. Sebelius, 567 U.S., 2012 WL 2427810 (2012 Jun 28). 27 Kaiser Family Foundation. Status of state action on the Medicaid expansion decision, 2014 [Internet]. Menlo Park (CA): KFF; [cited 2014 Mar 19]. Available from: http://kff .org/health-reform/state-indicator/ state-activity-around-expandingmedicaid-under-the-affordable-careact/ 28 Congressional Budget Office. CBO’s February 2013 estimate of the effects of the Affordable Care Act on health insurance coverage [Internet]. Washington (DC): CBO; 2013 Feb [cited 2014 Mar 19]. Available from: http://www.cbo.gov/sites/default/ files/cbofiles/attachments/439002013-02-ACA.pdf

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