A Shared Destiny Community Effects of Uninsurance (2003) / Chapter Skim
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2 Context for Community Effects: Uninsurance and the Financing and Delivery of Health Services
2 Context for Community Effects: Uninsurance and the Financing and Delivery of Health Services
Pages 34-81
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From page 34... ...
The chapter also documents the magnitude and distribution among providers of uncompensated care to the uninsured and considers who, if anyone, is responsible for providing that care. The chapter is divided into four sections.
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From page 35... ...
As a result, there has been an erosion of the previous level of public support and private cross-subsidy for the uncompensated care costs associated with providing health services to uninsured persons. The effects of this erosion have been felt more strongly in communities with large or growing uninsured populations and by providers (e.g., public hospitals)
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From page 36... ...
The Rise of Health Insurance Before the advent of Medicare and Medicaid in the mid-1960s, persons without the means to pay for their care relied for the most part on the charity of individual physicians, hospitals, and clinics in their communities. In the nineteenth century and into the early twentieth century, hospital dispensaries and public hospitals were important locations where medically indigent patients could obtain medical care, while patients with the means to hire physicians were treated in their homes.
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From page 37... ...
A third source was federal vendor payments to the states to partially reimburse the care delivered to medically indigent persons, a predecessor to the Medicaid program (Stevens, 1989~. Continued inflation in the costs of health care, however, brought new difficulties for uninsured persons in getting access to care and strained the capacity of these initiatives to accommodate growing volumes and costs of uncompensated care.
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From page 38... ...
These neighborhood health centers eventually became community health centers. The National Health Services Corps, begun in the early 1970s, placed new physicians in medically underserved communities (Redman, 1973)
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From page 39... ...
Some have argued that, in fact, Medicaid actually fostered fragmentation of the health care system, for example, by not remedying existing racial segregation and segregation of the poor within health care facilities (Stevens, 1989~.3 In the 1970s, public hospitals, particularly in urban areas, found themselves with many uninsured patients and inadequate reimbursement for many services, leading to great financial stress. By the early 1970s there were also efforts to constrain the huge increase in hospital expenditures by limiting expansion of Medicaid and by price controls (Etheredge, 2000~.
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From page 40... ...
Some hospitals found prospective payment to be profitable while others, for example public hospitals in large urban areas, lost revenue. With pressures on hospitals and providers to keep their costs low, the cross-subsidy or support of uncompensated care for uninsured patients became more difficult, especially for hospitals that disproportionately served the uninsured (Stevens, 1989~.
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From page 41... ...
This contrasts with the trend for uncompensated care, which showed little change, while total margins for hospitals at first grew and then declined. There has been an erosion ofthe capacity of hospitals to cross-subsidize uncompensated care.
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From page 42... ...
* A Uncompensated Care Gain/Loss Private Payer Gain/Loss \ \ \ if Medicare Gain/Loss 1991 1992 1993 ;~4 1995 1996 1997 1998 1999 2000 FIGURE 2.1 Hospitals' total margins, with percent gains or losses by source of payment (private payer, uncompensated care, Medicare)
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From page 43... ...
; other independent community, faith-based, or free clinics; hospital outpatient departments; public hospitals; and hospital emergency departments. In certain parts of the country, private hospitals may participate in safety net arrangements (Lewin and Altman, 2000~.
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From page 44... ...
This blending of safety-net and mainstream health care services is particularly likely in rural areas and for specialty care in general. There is significant heterogeneity across localities in the financing, function, and scope of safety-net arrangements, depending on factors such as the size of the
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From page 45... ...
Although providers and institutions commonly considered to be parts of local safety-net arrangements are more likely than others to treat uninsured persons and members of partially uninsured families, most uninsured persons and their families obtain care not from formal safety-net arrangements but from mainstream health services providers and institutions (Cunningham and Tu, 1997; Lewin and Altman, 2000~. In terms of the distribution of reported uncompensated care in 1994 as a rough proxy for services delivered to uninsured and other medically underserved groups, for example, private hospitals provided $10.6 billion in uncompensated care costs, while public hospitals provided $6.2 billion (Cunningham and Tu, 1997~.
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From page 46... ...
Although the expansion of the federally supported health centers is anticipated to improve their ability to meet a growing patient demand, given the limited capacity and geographical limits of community health centers (CHCs) , providers such as hospital outpatient clinics and emergency departments are unlikely to be replaced by CHCs as providers of the greatest volume of primary care for uninsured persons.
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From page 47... ...
Some is traceable to insured patients who do not pay their copayments or deductibles. Three studies based on data from the 1980s estimate the share of hospital uncompensated care costs attributable to uninsured patients.
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From page 48... ...
and the American Academy of Pediatrics (AAP) have surveyed their members about the provision of uncompensated care.
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From page 49... ...
There has been growth in the number of uninsured persons receiving free or reduced-price care from community health centers, from 2.2 million in the early 1990s to 4.0 million people in 2001. Clinics have a limited capacity to care for their client base, and this capacity has been threatened in recent years.
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From page 50... ...
Data from AHA annual surveys are the basis for recent national estimates of hospital uncompensated care. Over the past decade, uncompensated care expenditures at hospitals nationally have been relatively stable at about 6 percent of costs
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From page 51... ...
. In 1999, this translated into roughly $20.8 billion of care that was reported provided to patients who could not or did not pay their bills (MedPAC, 2001~.9 The proportion of uncompensated care remained relatively 9Estimates in terms of the difference between what a hospital charges and what it is paid may overstate the extent of lost revenues, since hospitals may adjust their charges based on anticipated changes in reimbursement (Conover, 1998)
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From page 52... ...
This has been attributed to new market pressures on hospitals and, consequently, a lessened ability to shift uncompensated care costs to insured patients, both public and private (Cunningham and Tu, 1997~. These authors project that if Medicaid managed care patients go to private hospitals and uninsured patients are concentrated in public facilities, public hospitals will face increased fiscal pressure due to the combined impact of reduced revenue and uncompensated care.
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From page 53... ...
WHO PAYS FOR CARE FOR UNINSURED PERSONS? Finding: Public support for the uncompensated care expenses incurred by uninsured persons is substantial.
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From page 54... ...
Finding: Although a larger scale and scope of public insurance programs (e.g., Medicaid, SCHIP) is sometimes associated with lower uninsured rates at the state level, it is the size of an area's lower-income population (families with incomes of less than 200 percent of the federal poverty level, or FPL)
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From page 55... ...
The financial and organizational ties that bind safety-net arrangements to mainstream health care mean that unreimbursed expenditures for health services delivered to uninsured persons are borne by both public and private payers and by federal taxpayers as well as state and local ones. These expenditures, charges, or costs contribute to the total burden of uncompensated care shouldered by local providers and governments at all levels.
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From page 56... ...
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From page 57... ...
The proportion of the subsidy borne by government, providers, and philanthropy also varies by type of service. Explicit subsidies include public sources such as operating grants to community health centers and public hospitals and private sources such as philanthropic grants and hospital endowments for charity care.
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From page 58... ...
Box 2.5 lists the major federal sources and mechanisms. Monies for the care of uninsured people are provided largely through special financing provisions of the Medicaid program and by state and local tax revenues that subsidize uncompensated care for lower-income persons.
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From page 60... ...
Although the nominal purpose of Medicare and Medicaid DSH payments was to compensate hospitals for the additional costs of serving low-income program beneficiaries, the original impetus for the programs included a recognition of the need for additional rev
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From page 61... ...
CONTEXT FOR COMMUNITY EFFECTS 6 enues by hospitals caring for a high volume of uninsured patients and a relatively low volume of privately insured patients (Coughlin and Liska, 1997; Fagnani and Tolbert, 1999; Coughlin et al., 2000; Nicholson, 2002~. Medicaid and Medicare DSH payments shape local capacity to provide services for uninsured persons, even though the number of uninsured patients and the amount of care provided them are not taken directly into account when allocating these funds (Fagnani and Tolbert, 1999~.
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From page 62... ...
If states or localities reduce their own support of hospitals for uncompensated care and simply allow federal payments to replace what they had previously supported, the value of the DSH payments to providers is obviously less than if the federal support augments state and local funding. Table 2.2 represents a regional summary offederal payments to the states under the Medicare and Medicaid DSH programs in 1998, compared to the relative size of the target population (uninsured persons and Medicaid enrollees)
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From page 63... ...
· For states in the Mountain region, the proportion of the target population is comparable to the national average (28.9 percent) , but the combined DSH payments per member of the target group fall short, with the region's states receiving on average 40 percent of the national average DSH payment ($114~.
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From page 64... ...
Both the extensiveness of their public insurance programs and the level of payments for services under these programs affect the financial status of health care providers that serve unin12The 13 states in this ongoing study include Alabama, California, Colorado, Florida, Massachusetts, Michigan, Minnesota, Mississippi, NewJersey, New York, Texas, Washington, and Wisconsin. 13See the Committee's previous report, Health Insurance Is a Family Matter, for a fuller discussion of Medicaid and SCHIP and state eligibility standards for these programs (IOM, 2002b)
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From page 65... ...
Like Medicaid DSH payments, state uncompensated care pools are an indirect means of financing care for uninsured persons and, as such, have similar problems with inefficiencies. Increasingly competitive hospital markets have spurred greater resistance by hospitals to assessments levied by the state, and fair and efficient targeting of pool funds is made more difficult by lack of information about actual amounts of charity care provided to uninsured patients.
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From page 68... ...
The largest proportion (average of 44 percent) of total budgets for these health departments comes from local funds (county, city, town)
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From page 69... ...
(NACCHO, 2001~. Local health departments deliver primary care and categorically funded services that are both public health activities and personal health care services (e.g., maternal and child health, immunizations, family planning clinics)
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From page 70... ...
Yet the extent of employment-based health insurance coverage has an even greater effect on state-level uninsured rates than does the expansiveness of the state's Medicaid program (Holahan, 2002~. Some researchers have investigated whether the availability of publicly provided services within a community influences local uninsured rates.
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From page 71... ...
However, consequent to the Benefits Improvement and Protection Act of 2000 (BIPA) , the federal government adopted a prospective payment system for Medicaid managed care contracts with CHCs, based on each center's cost experience, which is expected to ameliorate some of the adverse effects of managed care contracting for health centers (US GAO, 2001; Schneider, 2002~.
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From page 74... ...
74 A SHARED DESTINY: COMMUNITY EFFECTS OF UNINSURANCE Foundation's six-year program of grants to 13 communities through its Community Voices program supports collaborative efforts to expand access to care through expanded insurance coverage (Kellogg Foundation, 2002)
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From page 75... ...
. In California, not-for-profit health plans converting to for-profit status are required by the state to transfer the not-for-profit's assets into a charitable foundation (California Wellness Foundation, nods.
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From page 76... ...
Third-Party Payers and Cross-Subsidization An earlier section of this chapter describes the public subsidies that reimburse some of the uncompensated care expenditures incurred by uninsured persons. Private sector payers may also contribute to the reimbursement of providers' uncompensated care costs.
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From page 77... ...
uncompensated care and change in hospitals' financial margins; the trends could be interpreted as evidence that hospitals have actually been able to raise their charges to private payers in order to cover uncompensated care costs. It is difficult to interpret the changes in hospital pricing because published studies have examined individual hospitals, rather than the overall relationship between uncompensated care, uninsured rates, and pricing trends in the hospital services market overall.
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From page 78... ...
Institutional efforts to reduce private cross-subsidy can result in the transfer of the burden of uncompensated care from private hospitals to public institutions, which has been facilitated by the increasingly competitive market for hospital services and managed care contracting (Morrisey, 1996~. As discussed earlier in this chapter, in some urban areas there is evidence that uninsured patients are being even more concentrated at safety-net facilities and that, as a result, there is less opportunity for private cross-subsidy of their care.
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From page 79... ...
in addition, it is difficult if not impossible to compare the relative amounts spent by states through the Medicaid DSH program because states use a variety of methods to generate their match (e.g., tax revenues, intergovernmental transfers from public hospitals) and report different types of data.
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From page 80... ...
crosssubsidize the costs of care for uninsured patients. However, the size of this subsidy is difficult to estimate and the mechanisms through which this uncompensated care is subsidized are complex and not explicitly addressed or documented in the research literature.
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From page 81... ...
economy and government finances magnifies market distortions and inequities and inefficiencies in the allocation of public resources. Hospital uncompensated care was much easier for both governments and the institutions themselves to address when Medicaid and Medicare together accounted for much less of the national spending on hospital care than the 48 percent that they currently do (Cowan et al., 2001~.
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