Is Uncompensated Care a Problem?

Supporters of an individual mandate for health insurance frequently cite the problem of "uncompensated care"—health care that hospitals perform but are never paid for, often (though not always) because the individuals involved lack insurance. For example, in a story earlier this week, The New York Times noted as follows:

Nationwide, the cost of unpaid care for hospitals, which includes charity care as well as money that could not be collected from patients, was around $36 billion in 2008. It is expected to spiral higher. The number of people without insurance in this country could increase to as high as 58 million by 2014, from about 49 million now, according to an estimate by the Urban Institute.

But how significant a problem is uncompensated care? And would an individual mandate like the one proposed in the Senate's health care reform bill really solve the problem? In a 2007 article for Cato Policy Report, Cal State Northridge economist Glen Whitman  argued that the answers to those two questions are "not very" and "probably not."

For all the hype, uncompensated care makes up a relatively small amount of the nation's total health expenses; in 2001, for example, Whitman notes that, at around $35 billion, it accounted for roughly 2.8 percent of total health care expenditures. Given that total health expenditures have risen since 2001, the Times' figure of $36 billion in uncompensated care almost certainly represents an even smaller piece of the total health-spending pie.

Whitman also notes that about a third of uncompensated care is actually doled out to the insured; a mandate probably won't make any difference for those who already have insurance. More generally, he takes issue with the idea that a mandate would actually "solve" the problem:

[T]o the extent that the public has to subsidize the formerly uninsured, the free-riding problem has not been solved — it has merely been shifted. It's wrong to say we "solve" the free-rider problem if all we're doing is paying for the free riders in a different way.

And what does it cost to make that shift? The official cost of the Senate health care bill is about $850 billion over ten years. But the real cost of implementation over ten years is more like $1.8 trillion. And that figure doesn't include the direct cost of the individual mandates on individuals—which likely adds an additional 60 percent to the total. That strikes me as an awful lot of money to fix a $36 billion problem.