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.

Well, the bad news is, the procedure costs $5,000. The good news is, we found a dollar in your pants pocket!

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.

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  1. How does this compare with “slippage” in retail? Is that even a good comparison? Seems like this is a lot lower that merchandise at department stores that goes out the door without being paid for.

    1. Shoplifting a prostate exam is not all that tempting.

    2. How does this compare with “slippage” in retail?

      Typically called shrinkage so as to conflate confusion for those who feel they have been shortchanged in the pool. Be a grower, not a shower.

  2. 2.8% spread out over every provider is a small number. The problem is that this never happens. If you are a pediatric specialist, you can count on more like 25% uncompensated care. If you are a specialty hospital like a cancer center, you can get into serious loss figures with even a handful of unfunded patients.

    1. Agreed. There’s a lot of regional and specialty variation that gets missed when you look at numbers from this height. Some insitutions, particularly urban trauma centers, have a significant problem with expensive uncompensated care.

      1. Sure, no doubt there’s regional variation. But the point remains that uncompensated care is hardly the driver of medical cost inflation from a global view.

        All you’re arguing is that the areas and specialties that don’t see as much uncompensated care should subsidize those that do, or that the current flow of subsidies should be rearranged.

        It has little to nothing to do with increasing care or decreasing the cost to the taxpayer at large. It might do a little bit to keep hospitals in those areas from closing, though one would think that some amount of uncompensated care is the point of not-for-profit religious and charitable hospitals.

        I don’t think that most people think of the “health system crisis” as being that certain hospitals and doctors aren’t profitable enough because they work in bad areas.

        1. But the point remains that uncompensated care is hardly the driver of medical cost inflation from a global view.

          It is somewhat of a red-herring to the extent that the doctors, nurses and hospital administrators are most certainly getting paid very well. But uncompensated care distorts the pricing model tremendously, and that creates plenty of problems.

        2. I don’t think that most people think of the “health system crisis” as being that certain hospitals and doctors aren’t profitable enough because they work in bad areas.

          But that really is a kind of crisis. If most of the hospitals in Detroit or L.A. shut down, it doesn’t matter that you can still get care in Naples, FL. If your level one trauma center goes away, the fact that there’s an outpatient surgical center around the corner isn’t going to help much.

          It’s the same story for malpractice. Costs are not evenly distributed and the result is real, if localized, problems with the delivery of care.

          1. The problem is magnified because all of us who work in healthcare are dependent on capital flow to one extent or another. The decisions about where the capital flows is made by admin people who are responsible for growing the organization’s capital.

            If you are in an area that gets a lot of unfunded patients, or in an area like CF or hemophilia care where one patient can blow out a hospital’s pharmacy budget for a fiscal year in a week, you tend to get treated a lot differently than if you are in a profitable area. Our students and residents see this and make reasonable choices to limit their exposure. This creates even more concentration of unfunded services as there are fewer and fewer people wanting to do the work, yet the same number of patients wanting care, and they want the same quality of care and service that the profitable patients get, amplifying the problem yet again.

    2. Uncompensated care insurance …

  3. The idea that insuring more people will result in less use of medical services is delusional. I wish more people would point out the fallacy of this uncompensated care hoax.

    1. “The idea that insuring more people will result in less use of medical services is delusional.” Preventive medicine results in less emergency hospital use. The concern of overuse/hangnail emergencies can be rectified with high deductibles.

  4. 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.

    Thank you.

    1. Or, more accurately, redistributing the money. Which can be a good thing if you want hospitals providing trauma services to stay open, for example.

  5. health care that hospitals perform but are never paid for, often (though not always) because the individuals involved lack insurance.

    1. Fucking squirrels.

      Let’s not forget how egregiously inflated those “costs” most likely are.

      If nothing else, they will end up as “uncollectable bad debts” which reduce the hospital’s reported income (a “subsidy” of sorts, from the IRS).

      1. This is sort of confusing. Government payments, like Medicare, try to get away with below market value payments. So the other prices should be increased to make up for the government system.

  6. Even if everyone had caddilac union insurance plans, it is not like the uncompensated costs would go away. They would just be paid by someone else. Liberals always act like the costs of treating the uninsured will somehow go away with universal insurance instead of just being shifted somewhere else.

    1. The people advocating these policies are perfectly aware that costs are being shifted, in spite of your strawman assertion.

      Take a real world example: operating rooms have historically made money for hospitals, as the compensation for reimbursed or elective procedures outweighed uncompensated surgical care.

      A recent trend in the past decade and a half has been the opening of outpatient surgical clinics where easy, quick paying procedures can be done – breast augementations, gallbladders, ear tubes, etc. – at great profit margins.

      This is fantastic for the surgical centers and their patients, but means that the larger hospitals where these procedures were previously done now have to service the gun and knife club without the income from insured patients to balance their books.

      The result is that either money has to be redistributed to trauma centers, through subsidies or some more byzantine mechanism, or you’ll have nowhere to go but the titty clinic when a transfer truck levels your beamer on the highway.

      1. The medical profession has to be the biggest bunch of crybabies in the world. Lots of professions provide uncompensated services such as pro bono work by lawyers, the free software movement, etc. and manage to do just fine.

        If hospitals have a problem with money, they need to cut costs to the point where people can pay. Both an operating room and a hotel room occupy a couple hundred feet of commercial real estate. One costs thosands per hour, the other $40/night.

        I think all surgery should be required to be performed in an econo lodge until the medical profession can get itself together.

        1. You win the nail on the head remark of the day.

  7. In addition to the fact that they are evil, bloodsucking usurers, credit card companies base their rates explicitly on the reasonable expectation that some of their customers won’t pay. The ones who pay cover the ones who don’t.

    Hospitals do it, too. Always have, I believe.

  8. Going to single-payer or mandated coverage in order to deal with uncompensated care is spending $100 to fix a $5 problem.

    1. Stupid squirrels.

      …But the proponents of socialized medicine know this and don’t care. Since their focus has always been on ruining health care for some to provide mediocre care to all.

  9. …Cal State Northridge economist Glen Whitman…

    Go Matadors!!

  10. they are including the potential profits they would have gained had they been paid. if they were only counting actual money lost at cost, the loss of potential profits would be smaller. my point being that uncompensated care might actually be even less of a problem than they say it is.

  11. damn how did I mess that up, that sentence should read: if they were only counting actual money lost, the cost of the services minus profits, the losses from uncompensated care would be smaller.

  12. As others have hinted at, the amount of cost shifting that goes on because of unfunded medical costs is a mere pittance compared to the amount of shifting that has gone on because of Medicare and Medicaid.

    1. Don’t we all pay for cost shifting in Medicare and Medicaid but only the unlucky few pay for hospital cost shifting?

  13. But how significant a problem is uncompensated care?

    Very significant from a state’s point of view. In 2003, NJ spent $767 million in charity care plus another $200 million from the Hospital Relief Subsidy Fund and the Hospital Relief Subsidy Fund for the Mentally Ill and Developmentally Disabled. This figure does not include middle income uncompensated costs or insured non-payment of matching costs. There are approx. 1.3 million uninsured with only 40% falling within the income guidelines for charity care in NJ. 50% of charity care costs were attributable to only 5% of total patient encounters. 2 of the top 4 ailments treated were drug dependency and HIV. If not for charity care in NJ, 70% of all hospitals would be insolvent.

    A large portion of charity care costs might be saved with improved medical management for a small number of high-cost charity care patients. This point is underscored by the prevalence of charity care costs attributable to ED visits and inpatient admissions for conditions that may have been avoided with timely access to primary care. These costs amounted to approximately 10% of total charity care costs throughout the
    study period (1999-2003).


    1. 2 of the top 4 ailments treated were drug dependency and HIV

      Clarification. These are in the most costly primary diagnosis category and not most common.

  14. Even if you’re just going by the portion of the bill that Medicaid and Medicare don’t pay, that’s some 70 cents per dollar billed that goes unpaid by Medicare and Medicaid. On just Medicare alone, I think we’re already to some $450 billion in ’09 …so that math makes for a hell of a lot more than $35 billion a year unfunded.

    So if he’s using some other way to figure unfunded costs, I’d really like to see it.

    …he may be saying those unpaid expenses are made up by charging private pay patients (be they cash patients or private insurance), but that’s sort of the whole point, isn’t it? That looks like the ‘ol bait and switch to me.

    Nobody’s saying the medical system goes unfunded. Hospitals aren’t paying their expenses with air…we know that.

    But many of us are saying that private insurance and cash patients are making up for the shortfall with high premiums, higher bills and exclusions for things like pre-existing conditions, and what they make up for weighs in at a hell of a lot more than $35 billion a year.

    Seriously, it sounds like you’re subtracting what private pay patients make up for in unfunded costs, and then saying the result of that is unfunded. And that number’s just not what anybody’s talking about.

    “Whitman notes that, at around $35 billion, it accounted for roughly 2.8 percent of total health care expenditures.”

    Let’s just for the moment assume those numbers are right…

    Is that evenly distributed?

    Do cash patients at an inner city hospitals (with few private pay patients) have a heavier financial burden (or less care available) than cash patients at hospitals somewhere in the suburbs?

    Having watched an inner city hospital go down the drain from the inside…I can tell you the answer is “yes”. Seeing County USC and Harbor UCLA always in trouble, while hospitals in Orange County seem to just to fine… King Drew anyone? It’s about the demographics and how many of them are privately insured.

    The fact remains, even at those numbers, the truly unfunded burden of Medicare and Medicaid falls disproportionately on the unemployed, the uninsured and private pay patients. The very existence of a hospital in your neighborhood still depends entirely on what percentage of the local population only has Medicare and Medicaid. ….and if the numbers aren’t reflecting that, then somebody’s playing funny with the numbers.

    P.S. Regardless of whether “dollars billed” is a meaningful term, if Medicare and Medicaid are still only actually paying a small fraction of “dollars billed”, then what exactly is being referred to as “unfunded costs” to get to only $35 billion? …cause right now, that doesn’t add up.

  15. A few facts from someone who knows this shit inside and out:

    (1) Uncompensated care is only a part of the problem. A bigger part is undercompensated care, namely, the fact that Medicare and very especially Medicaid don’t even cover the out-of-pocket costs of care.

    (2) A hospital that takes Medicare (meaning, all but a literal handful) cannot turn anyone away. Period. End of sentence. So every hospital has an open door to patients regardless of whether they can or will pay.

    (3) As noted above, un/undercompensated care is not evenly distributed.

    (4) The ability of hospitals to cut costs is severely constrained by both the very high degree of regulation and a rapacious plaintiff’s bar.

    1. Seriously, …for anybody listening?

      I’ve been posting on this board since around 2004 or so? Give or take 6 months…

      And RC Dean can correct me if I’m wrong, but in all that time, I don’t think there’s anything else that we’ve ever agreed on–except this.

      Trying to help run a hospital probably has something to do with that.

      You keep touting this if you want to, Suderman, but I’m tellin’ you, there’s a fox in the henhouse somewhere. …’cause what that guy’s saying up there doesn’t add up.

  16. Preventive medicine is an even bigger hoax than the uncompensated care hoax.

  17. Forcing people to provide services for free is a problem, if only from a moral perspective. But, it also has practical consequences if, say, you injure yourself or are having a baby in an inner city or rural area where the hospital closed — or was never built — due to the financial drain from forced free care.

    1. I doubt there would not be any hospitals built in the first place in inner cities or rural areas if a large percentage of the population were poor and uninsured.

      1. Delete “not”.

        1. You are mistaken in your belief. A little googling would clear this up for you.

          These largely unprofitable hospitals tend to be run or subsidized by government, since rational people don’t work at a loss.

  18. Uh, the $1.8 trillion figure you cite is based on a chart from the Republican Health Care Caucus. Maybe you could find a more independent source to make your point?

  19. You can find full medical coverage at the lowest price from http://bit.ly/atGzeD – Jack Orton

  20. As of today any individual can drop their insurance and make use of the emergency room as their primary care..and in addition if they meet the expanding criteria for charity care they will have no bills to pay..everyone needs to have their own primary care physician if we are to reduce admissions for chronic illnesses..admissions is where the cost savings is buried..

  21. Uncompensated care is a problem because charitable healthcare is mandated.

    If people were made to pay the debts off, it would not be a problem. The times when a person is unconsious and is take to the hospital. The care should be provided 100% by the hospital, because they are providing a service you did not agree to. The bill should be left as an option of payment. Maybe the person would rather die than be burdened with the debt of paying for their health.

    1. If people paid their own bills it would help bring all of this into perspective and more than a few would most likely rather die than be burdened with the debt of paying for their health.

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