At the Intersection of Health, Health Care and Policy

doi: 10.1377/hlthaff.2013.1068
 
, 33, no.5 (2014):807-814 Health Affairs
Payment Cuts Could Challenge Providers
An Estimated $84.9 Billion In Uncompensated Care Was Provided In 2013; ACA
Teresa A. Coughlin, John Holahan, Kyle Caswell and Megan McGrath
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By 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
ABSTRACT 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.
M
illions of uninsured Ameri-
cans use health care services
every year. Since care tends to
be costly, and the vast major-
ity of uninsured people have
limited financial means, many uninsured people
oftencannot pay their medical expenses.
1
Recog-
nizing the need for and the importance of health
care, providers that care for the uninsured with-
out financial compensation, and governments at
the federal, state, and local levels have long pro-
vided 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 dispropor-
tionate-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 fundamental-
ly reshaping the nation’s health care landscape,
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 estab-
lishes health insurance exchanges, known as
Marketplaces, through which people can obtain
coverage. Over the next decade an estimated
twenty-five million people will gainhealth insur-
ance through the ACA.
2
To help cover the costs of this significant ex-
pansion of insurance coverage, the federal gov-
ernment 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’ uncompen-
sated care costs. Anticipating that there will be
fewer uninsuredpeople andless uncompensated
care in the future, the ACAreduces federal Medi-
care DSHpayments beginning in 2014 and Med-
doi: 10.1377/hlthaff.2013.1068
HEALTH AFFAIRS 33,
NO. 5 (2014): 807–814
©2014 Project HOPE—
The People-to-People Health
Foundation, Inc.
Teresa A. Coughlin
(tcoughlin@urban.org) is a
senior fellow at the Health
Policy Center, Urban Institute,
in Washington, D.C.
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.
May 201 4 33: 5 Health Affai rs 807
Health Care Costs
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icaid DSH payments beginning in 2016.
Withthe expansionof 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 sup-
port is likely to diminish.
Building on earlier work, we estimated the
costs associated with uncompensated care pro-
vided 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 sourc-
es of funding currently available in the health
care systemto help defray providers’ uncompen-
sated care costs. Finally, we explored the extent
to which private health insurance dollars are
used to cover the health care costs of the un-
insured.
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 Expen-
diture Panel Survey (MEPS). For the second, we
used published secondary data from health care
providers and government sources.
MEPS Data MEPS is a nationally representa-
tive household survey of the US civilian non-
institutionalized population. It collects detailed
informationonhealthinsurance status andmed-
ical care use by month, as well as medical expen-
ditures by source.
6
To obtain more precise un-
compensated care estimates, we pooled MEPS
data for 2008, 2009, and 2010. Given that most
elderly people in the United States have Medi-
care coverage, we limited our analysis to respon-
dents ages sixty-four and younger. The final
study sample contained 86,047 respondent-year
observations.
▸ADJUSTMENTS TO THE DATA: We made sev-
eral adjustments to the MEPS data. First, we
adjusted for the acknowledged level of expendi-
ture 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
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 can-
not 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 provid-
er would have expected to receive from an un-
insured patient if the person had had private
insurance, andthe payment the provider actually
received from the uninsured patient. The differ-
ence 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 Af-
fairs, 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 ex-
cluded that spending because this category rep-
resents 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 respon-
dents’ errors in reporting their insurance status.
Limitations There are acknowledged limita-
tions to our analysis, including the several ad-
justments we made to the MEPS data to estimate
uncompensatedcare costs. Tothe extent that our
adjustments were incorrect, our estimates are
also incorrect. In addition, because MEPS data
are largely based on self-reported data, our esti-
mates, like all survey-based research, had asso-
ciated biases and shortcomings.
The data sources we used to produce the sec-
ond estimate did not include uncompensated
care provided by office-based nonphysician
health care providers such as dentists and op-
tometrists, as well as prescription drugs and
medical supplies and devices.
11,12
Furthermore, because of data limitations we
made some admittedly crude assumptions about
Health Care Costs
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the shares of government-sponsored communi-
ty-based providers’ budgets that were spent on
care for the uninsured. For many of these pro-
viders we assumed that this share was equal to
the level of uninsurance in the overall popula-
tion. 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 pro-
viders’ 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 second-
largest was indirect payments made by other pri-
vate, public, and unclassified sources. Combin-
ing those two sources, we estimated that un-
compensated 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 pay-
ments were $697 per person (Exhibit 1). Togeth-
er 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 pe-
riods when they had insurance: $2,878 per per-
son, or 84 percent of the total (Exhibit 1). Private
insurance and Medicaid together contributed
77 percent of per capita spendingduringthe time
respondents reported being insured. For the pe-
riod 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 ac-
counted for 70 percent of their total medical ex-
penditures ($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 Govern-
ment 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 uninsured
c
All uninsured
a
Full-year
uninsured
b
All year While insured
While
uninsured
Full-year
insured
d
Total spending $2,876 $2,443 $3,439 $2,878 $561 $4,876
All direct sources 1,619 740 2,762 2,601 162 4,644
Out-of-pocket 490 500 476 315 162 610
Private insurance 559 0 1,286 1,286 0 2,966
Medicare 24 0 56 56 0 343
Medicaid 411 0 944 944 0 725
Other public
e
136 240 0 0 0 0
All indirect sources 1,257 1,702 677 278 399 232
Implicitly subsidized 653 1,005 195 0 195 0
Other private, public, and
unclassified sources
f
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.
a
Sample size: 26,419; estimated 2013 population: 72,180,997.
b
Sample size: 15,627;
estimated 2013 population: 40,799,801.
c
Sample size: 10,792; estimated 2013 population: 31,381,196.
d
Sample size: 57,979;
estimated 2013 population 196,400,000.
e
Corresponds to the MEPS expenditure category “other public,” which are Medicaid
payments for respondents who reported zero months of Medicaid coverage.
f
Includes 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).
May 201 4 33: 5 Health Affai rs 809
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allowed us to explore other features of un-
compensated care that could not be investigated
with MEPS data: namely, how the burden of un-
compensated care was divided among providers,
and what funding sources in the health care sys-
tem help pay for uncompensated care.
Our second estimate of uncompensated care
costs in2013was $74.9billion(Exhibit 3). This is
12 percent lower than the $84.9 billion we esti-
mated using MEPS data (Exhibit 2). The lower
estimate likely reflects the fact that we excluded
information from known sources of uncompen-
sated care, such as the costs of drugs provided to
the uninsured at no charge by some pharmaceu-
tical companies anduncompensatedcare provid-
ed 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 Depart-
ment of Veterans Affairs and the Indian Health
Service. For uncompensated care supported by
these public programs, we assumed that the un-
insured used care proportionate to their share of
the overall population. In reality, however, the
insured have access to other providers and prob-
ably use publicly supported providers only occa-
sionally. Thus, we likely underestimatedthe level
of uncompensated care that these publicly sup-
ported providers render to the uninsured.
Uncompensated Care By Place Of Service
We estimated that $44.6 billion of the $74.0 bil-
lion in uncompensated care spending was pro-
vided 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 Uncom-
pensated Care
▸MEDICAID: Medicaid makes two major types
of payments that help fund the cost of un-
compensated care. The first are DSH payments.
The second are upper payment limit (UPL) pay-
ments, whichstates have the optionof making to
a range of providers.
We relied on government sources to estimate
MedicaidDSHandUPLpayments andthenmade
several adjustments. The preliminary 2013 Med-
icaid DSH allocation was $11.5 billion, from
which we eliminated DSH payments made to
mental hospitals because of our focus on un-
compensated care related to acute care instead
of long-termcare—which is the type of care typi-
cally provided by mental hospitals.
13
We then calculated the state share of DSHpay-
ments based on the average federal matching
rate of 59.6 percent in 2013. But in many cases,
states’ share of DSHpayments are not paidby the
states. In fact, the vast majority of the state DSH
andUPLpayments arefinancedthroughtaxes 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
Exhibit 2
Projected 2013 Aggregate Medical Expenditures For The Nonelderly Uninsured, By Source
Of Payment In Billions Of Dollars
All
uninsured
Full-year
uninsured
Part-year
uninsured
Uncompensated care expenditures $ 84.9 $ 72.0 $12.9
Implicitly subsidized 49.0 42.7 6.3
Other private, public, and unclassified sources
a
35.9 29.3 6.6
Out-of-pocket expenditures 25.8 20.6 5.1
Other public
b
10.3 10.3 0.0
Total expenditures 121.0 102.9 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.
a
Includes the MEPS
expenditure categories listed in Exhibit 1, footnote f.
b
Corresponds to the MEPS expenditure
category “other public,” which are Medicaid payments for respondents who reported zero months
of Medicaid coverage.
Exhibit 3
Projected Uncompensated Care Costs In 2013, By Place Of Service, Billions Of Dollars
Place of service
Uncompensated
care costs Percent of costs
All places $74.9 100.0
Hospital
a
44.6 59.5
Community
b
30.3 40.5
Publicly supported 19.8 26.4
Office-based physicians 10.5 14.0
SOURCE Authors’ analysis of items in exhibit footnotes. NOTE Percentages may not sum to totals
because of rounding.
a
American 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.
Health Care Costs
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being available to hospitals to fund uncompen-
satedcare.We estimatedthat $11.1 billioninMed-
icaid 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 re-
ported that UPL payments for inpatient and out-
patient hospital care totaled $22.1 billion.
15
Fol-
lowing 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 thenused NHEAhospital
data to inflate UPL payments to 2013. We esti-
mated that the UPL payments available to fund
hospitals’ uncompensated care for the un-
insured 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 un-
compensated 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 under-
payments in 2012 at $13.7 billion.
16
Distributing
this between federal and state Medicaid shares,
we estimated $12.1 billion in federal underpay-
ments 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 pay-
ments for uncompensated care in 2013 were
$13.5 billion (Exhibit 4).
▸MEDICARE: Medicare also provides support
for uncompensated care through DSH pay-
ments. 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 be-
cause 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 concen-
tration 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 uncompensat-
ed care for the uninsured.
18
We also assumed that some IME payments
served the uninsured. Again, because the rela-
tionship between the concentration of the un-
insured 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
DSHand IME payments available to support un-
compensated care in 2013 was $8.0 billion
(Exhibit 4).
▸OTHER FEDERAL PROGRAMS: We included
uncompensated care funding provided by sever-
al other federally funded programs. These pro-
grams were the Department of Veterans Affairs,
community health centers, the Indian Health
Service, the Ryan White HIV/AIDS Program,
and Maternal and Child Health Title V block
grants (Exhibit 4).
Exhibit 4
Projected Publicly Financed Uncompensated Care In 2013, By Program Type And Funding
Source, Billions Of Dollars
State or
local ($)
All sources
Program Federal ($) Dollars Percent
All 32.8
a
19.8
b
52.6 100.0
Federal programs
Medicaid (DSH and UPL)
c
11.8 1.6 13.5 25.7
Medicare (DSH and IME)
e
8.0 —
d
8.0 15.2
Department of Veterans Affairs
f
8.1 —
d
8.1 15.4
Community health centers
g
1.9 0.8 2.7 5.1
Indian Health Service
h
2.1 —
d
2.1 4.0
Ryan White
i
0.9 0.2 1.1 2.1
MCH Title V block grant
j

d
0.1 0.1 0.2
State and local programs
k
Indigent health programs —
d
9.8 9.8 18.6
Public assistant programs —
d
7.3 7.3 13.9
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.
a
63.5 percent.
b
36.5 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/Medicaid-
CHIP-Program-Information/By-Topics/Data-and-Systems/MBES/Downloads/FY02throughFY11Net
Expenditure.zip.
d
Not applicable.
e
Congressional 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.
f
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.
g
Bureau of Primary Health Care.
Uniform data system, national rollup report. Rockville (MD): Health Resources and Services
Administration; 2011.
h
Department 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.
j
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.
k
Centers
for Medicare and Medicaid Services. Table 19: National health expenditures by type of
expenditure and program, calendar year 2011. Baltimore (MD): CMS; 2011.
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▸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 Med-
icaid 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 un-
compensated 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 bil-
lion 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 es-
timated was spent on uncompensated care in
2013. The difference between our two estimates
of total uncompensated care and the funds avail-
able was $22.3 billion and $32.3 billion. Some of
this difference was covered by in-kind contribu-
tions by physicians, which we estimated to be
$10.5 billion (Exhibit 3). Some was covered by
philanthropy, although the level of this was dif-
ficult 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 esti-
mates, 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, how-
ever, the amount potentially associated withcost
shifting through increased premiums and other
similar strategies representedonly about 2.4per-
cent of private health insurance costs.
20
To the
extent that targeting of government uncompen-
sated care funding is imprecise—resulting in the
overpaying of some providers and the underpay-
ing of others—the level of private insurance
spending could be higher.
We recognize that some hospitals with sub-
stantial market power have the ability to negoti-
ate 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 gener-
ally have a dominant role in local markets. But
MedPAC data have shown that major teaching
hospitals tend to have lower private-payment-to-
cost ratios, higher percentages of overall costs
accountedfor by uncompensatedcare, andlower
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 ar-
rangements 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 couldbe the
case that in some highly competitive markets, a
hospital wouldabsorbuncompensatedcare costs
as a loss andimplement 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 un-
insured in the US health care systemat $84.9 bil-
lion in 2013. Using secondary data fromgovern-
ment and provider sources, we produced a sec-
ond estimate of $74.9 billion. For reasons
described above, we believe that the lower esti-
mate understated uncompensated care in 2013
and that the $84.9 billion estimate is more ac-
curate.
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 aggre-
gate, at least 65 percent of providers’ uncompen-
sated care costs were offset by government
payments designed to cover these costs. Impor-
tantly, however, our analysis examined pro-
viders’ 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 un-
compensated care.
22,23
As a result, some pro-
viders likely incur costs caring for the uninsured

65%
Offset
In the aggregate, at least
65 percent of providers’
uncompensated care costs
were offset by
government payments
designed to cover these
costs.
Health Care Costs
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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 govern-
ment is the largest funder of uncompensated
care, providing more than 60 percent of the
available funding. Through DSH and UPL pay-
ments, 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 un-
compensated 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 pro-
viders’ uncompensated care costs, it will be criti-
cal to monitor how the ACA-mandated cutbacks
in DSH funding will affect hospitals—which, ac-
cording 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 base-
line 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 decision
26
that made the expansion of Medicaid coverage
optional for states under the ACA, and given the
fact that twenty-five states are not moving for-
ward with or still debating the option.
27
The cov-
erage 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 exam-
ple, lower-than-expected enrollment in some
Marketplaces and high-deductible and narrow-
network 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 reducingthe level of uncompensatedcarethey
provide or adopting more aggressive billing
practices for the uninsured.
State and local governments could similarly
reduce their considerable funding of uncompen-
sated 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 gov-
ernment used to reduce Medicare and Medicaid
DSHfunding, 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 fromthe coverage expan-
sion, however, will vary widely across states and
even within states.
Conclusion
Most of the ACA’s provisions took effect in Jan-
uary 2014, and the nation’s health care environ-
ment 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 un-
compensated 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 howthese 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
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2 Congressional Budget Office. Ta-
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effects of the Affordable Care Act on
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3 Congressional Budget Office. Ta-
ble 2: CBO’s May 2013 estimate of
the budgetary effects of the insur-
ance coverage provisions contained
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5 For details on our methods and data,
see Coughlin TA, Holahan J, Caswell
K, McGrath M. Uncompensated care
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Health Care Costs
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