Since the launch of health insurance coverage expansion in 2014 under the Affordable Care Act (ACA), Michigan and other states have experienced large decreases in the number of adults who lack health insurance, delay necessary care, and have trouble paying their medical bills.1 However, these effects have not been even nationwide, as 21 states had not adopted the ACA’s optional Medicaid expansion by the end of 2015.2
Hospitals are particularly affected by health insurance coverage expansions because many hospitals have traditionally provided free and/or reduced price services to low-income and uninsured patients as part of their social mission and community benefit requirements. Prior to the ACA coverage expansion, health care providers, including hospitals, provided approximately $1,000 of uncompensated care per uninsured individual.3
Hospitals have two forms of uncompensated care: charity care and bad debt.4 Charity care is delivered to indigent patients without the expectation of receiving payment, and bad debt occurs when a hospital bills for but is unable to collect the entire amount due from a patient.5This report updates an earlier CHRT report6 to measure the effect of the ACA’s coverage expansion, particularly the optional Medicaid expansion, on hospital uncompensated care costs and other financial outcomes. In addition, this report compares trends in uncompensated care across eight selected Midwestern states.
- Uncompensated care costs for hospitals decreased by about 23 percent nationwide from 2013 to 2015, but hospitals in Medicaid expansion states experienced much sharper deceases (39 percent) than those in non-expansion states (4 percent).
- Almost all selected states in the Midwest experienced decreases in uncompensated care from 2011 to 2015, while Missouri, a non-expansion state, experienced an increase in uncompensated care during this time.
- Compared to other selected Midwestern states, Michigan experienced the largest relative decline in uncompensated care costs from 2011 to 2015.
Other researchers have found that every uninsured patient costs hospitals $900 and that hospital closures increase uncompensated care at nearby hospitals. They also found that increases in uninsured populations cut into profit margins, suggesting that hospitals cannot fully pass along the costs of uncompensated care to insurance companies.8
Recent studies have documented the decline in hospital uncompensated care after the ACA’s coverage expansion began in 2014. One study found that state Medicaid expansion was associated with a $2.8 million decrease in uncompensated care per hospital and improved profit margins.9 Another study found larger uncompensated care reductions for hospitals in Medicaid expansion states that had greater pre-ACA uncompensated care burdens or were located in regions with greater numbers of people who became newly eligible for Medicaid.10
Many of these trends continued into 2015. The American Hospital Association (AHA) found that uncompensated care costs for hospitals nationwide decreased from $42.8 billion in 2014 to $35.7 billion in 2015. The ratio of uncompensated care to total expenses also fell substantially and is now the lowest it has been since the AHA began reporting in 1990.11
With the reduction in uninsured patients, some hospital systems expanded their qualification rules for charity care to provide assistance to patients with high deductibles and other out-of-pocket costs. In 2016, Ascension Health began waiving unpaid bills for patients with an income below 250 percent of the federal poverty level (FPL) and experienced a 12 percent increase in charity care costs in 2016.12
Figure 1: Hospital Uncompensated Care Costs for Medicaid Expansion and Non-Expansion States, 2011–2015
Figure 2: Characteristics of Hospitals in Selected Midwestern States
Neither Missouri nor Wisconsin has expanded Medicaid. However, Wisconsin is the only non-expansion state in the country that does not have a coverage gap for financial assistance.14Wisconsin’s Medicaid program covers adults with income up to 100 percent FPL, and adults whose income is above the poverty line are eligible for financial assistance through the health insurance marketplace. In contrast, childless non-disabled adults in Missouri are not eligible for Medicaid, regardless of income level.
Figure 3: Characteristics of Medicaid and Health Insurance Coverage in Selected Midwestern States
Overall, Michigan experienced the largest relative decrease in uncompensated care among the selected Midwestern states, dropping to 49 percent of 2011 levels in 2015. Wisconsin, which did not expand Medicaid but does not have a coverage gap, saw uncompensated care drop to 64 percent of 2011 levels. A study by the Wisconsin Hospital Association found similar declines in uncompensated care, especially from 2013 to 2015.19
Figure 4: Uncompensated Care Costs Compared to 2011 Levels, by State
Hospitals submit worksheet S-10 as part of their cost report that breaks down their uncompensated care costs into their separate sources. In our analysis, we define uncompensated care as the sum of charity care (care delivered with no expectation of payment) and bad debt (care that is billed but no payment is received), but underpayments from public payers (Medicare, Medicaid, and the Children’s Health Insurance Program) were excluded. The use of cost report data for uncompensated care research is still relatively new, and not all responses from hospitals are audited by CMS. However, MedPAC has supported using worksheet S-10 to directly measure uncompensated care costs.20 Data for inpatient days and outpatient visits were extracted from worksheet S-3, part 1, and data on operating margins were extracted from worksheet G-3 of the cost reports.
Cost reports submitted to hospitals are based on individual hospitals’ fiscal years, which have varying beginning and end dates. To generate comparable time-series measures, we converted hospital fiscal year measures to calendar year estimates by combining the portion of each fiscal year that fell within a given calendar year. Uncompensated care amounts were converted from charges to costs using hospital-specific cost-to-charge ratios calculated in the cost reports, and all financial measures were adjusted for inflation to 2014 dollars. Facilities that reported outlier uncompensated care amounts compared to their historic trend were dropped from the study.
Hospitals were identified as for-profit, nonprofit, or government-owned based on control status data from the 2013 American Hospital Association annual survey.21 Metropolitan status was determined based on the U.S. Department of Agriculture’s rural-urban continuum codes for 2013,22 and hospitals were identified as teaching institutions if they indicated in their cost reports that they train residents as part of an approved graduate medical education program.
Figure A-1: Uncompensated Care Trends in the United States, 2011–2015
Figure A-2: Uncompensated Care Trends by State, Medicaid Expansion States, 2011–2015
Figure A-3: Uncompensated Care Trends by State, Non-Expansion States, 2011–2015