Impact of Insurance Expansion on Hospital Uncompensated Care Costs in 2014. B. Projected Reduction in Uncompensated Care Costs in 2014 as a Result of Increased Rates of Medicaid Coverage and Decreased Rates of Uninsurance

09/01/2014

Based on the model outlined above, we found that, in 2011-2012, a one-million person increase in the number of individuals covered by Medicaid in a state was associated with a $0.292 billion decrease in hospital UCC in that state. Similarly, a one-million person increase in the number of uninsured in a state was associated with a $0.344 billion increase in hospital UCC in that state.

Therefore, a 7.9 million person increase in the number of uninsured individuals covered by Medicaid and an 10.3 million person decrease in the number of individuals who are uninsured overall, as we see in 2014 thus far, should lead to a net $5.7 billion reduction in hospital UCC costs in FY 2014 relative to what these costs would have been in the absence of coverage expansion, or a 16 percent reduction overall.

Most of this projected reduction ($4.2 billion of the $5.7 billion) is projected to come from reductions in charity care, with the remainder coming from reductions in bad debt. $4.2 billion of the reduction in UCC is projected to accrue in Medicaid expansion states, and $1.5 billion in Medicaid non-expansion states (Figure 9).

Figure 9: Projected Reduction in Uncompensated Care Costs in 2014, Billions of Dollars

Reassuringly, this estimated reduction is similar to the reduction that would be obtained by multiplying estimates of per capita uncompensated care costs in the literature by the total change in insurance coverage. For example, Coughlin et al.62 estimate that each full-year uninsured person incurred $1,005 in implicitly subsidized uninsured costs (the concept of uncompensated care most closely comparable to the estimate in this brief) in 2013. If 60 percent of that care is hospital-based, then a 10.3 million person reduction in the uninsured might be expected to lead to a 10.3 million * $1,005 * 60 percent, or $6.2 billion reduction in hospital uncompensated care costs, very similar to the $5.7 billion estimate arrived at above.

Applying our estimated reductions from the model, and assuming an otherwise stable level of anticipated spending in 2014 of $33.2 billion, we calculate that hospital UCC in 2014 under insurance expansion would therefore project to around $28 billion overall. We project that $13 billion of spending on UCC at hospitals would take place in Medicaid expansion states and $15 billion in Medicaid non-expansion states (Figure 10).

Figure 10: Projected Uncompensated Care Costs in 2014, Billions of Dollars

In sum, we find that insurance expansion under the ACA, via both Medicaid and Marketplace insurance expansion, can be anticipated to be associated with a sizeable reduction in hospital UCC costs. Though baseline UCC spending was similar between expansion and non-expansion states, projected UCC costs drop significantly more in expansion states under this projection. Hospitals in expansion states are projected to save $4.2 billion, which represents about 25 percent of these states’ baseline spending or 74 percent of the total savings nationally. Hospitals in non-expansion states are projected to save $1.5 billion, representing 9 percent of these states’ baseline spending, or 26 percent of the total savings nationally.


62 Coughlin et al, 2014

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