New research suggests the financial strain on hospitals and households will be immediate and significant if a U.S. Supreme Court decision ends subsidies for health insurance in 36 states. As many as 6.4 million Americans who bought insurance may drop it and become a financial burden to providers.
The study, published by the National Bureau of Economic Research, found a “minimum and unavoidable” demand for hospital care among the uninsured at an annual cost to hospitals of $900 a patient.
Using nearly three decades of data reported to the American Hospital Association and analyzing hospital costs in two states that previously cut Medicaid rolls, researchers also found that the financial strain from losing insurance hits hospitals and households swiftly.
“It is immediate,” said Craig Garthwaite, a health economist at Northwestern University in Evanston and one of the study's authors.
The uninsured will delay some hospital care that can be put off, but not all trips to the emergency room and hospital can be avoided. “There is a certain amount of care that people have to get, and that appears to be what hospitals are providing in uncompensated care,” Garthwaite said. The study did not examine ambulatory-care costs.
That means hospitals in states that did not expand Medicaid under the Affordable Care Act will spend $6.4 billion in 2022 on uncompensated care, according to the study. That's roughly the cost of financing Medicaid that year for the 21 states that failed to do so as of May.
“The government is directly saving money, but the hospitals in the state have to pick up the slack,” said Tal Gross, an assistant professor of health policy at Columbia University in New York and another co-author of the study.
And should the Supreme Court reverse use of subsidies in states that rely on federal officials to operate exchanges, hospitals' uncompensated-care costs would climb, Gross said.
During the first full year after the ACA expanded subsidized insurance through exchanges and Medicaid, the percent of Americans who were uninsured declined to 11.5% from 14.4% the prior year, according to data from the Centers for Disease Control and Prevention.
But an increase in hospitals' uncompensated cost to care for the uninsured does not mean households will be free of financial stress from hospital visits. “This doesn't mean that the hospital is not seeking payment,” Garthwaite said.
That's because the study included more than hospitals' cost for patients who receive free or discounted care under hospital financial aid policies. The American Hospital Association data also includes all other unpaid medical bills, known generally as “bad debt.” Hospitals seek to collect those bills, sometimes through collection agencies or legal action. Uninsured patients with unpaid medical bills see credit scores suffer as a result.
In separate research using data reported by tax-exempt hospitals to the Internal Revenue Service, Garthwaite estimated that 60% of uncompensated care is bad debt. The remaining 40% is free care under financial aid policies.
Tax-exempt hospitals, which account for the majority of U.S. hospitals, are more likely to feel financial strain from a rising number of uninsured, the research shows.
Tax-exempt hospitals receive federal, state and local tax breaks in exchange for providing a benefit to their communities. Research published in Health Affairs this month shows the value of that tax exemption doubled in a decade to $24.6 billion in 2011. Only in recent years have hospitals reported publicly on their community benefit spending to earn those tax breaks. Hospital spending on free care for low-income patients varies widely and some question the value to the community of providing hospitals these exemptions.
The new study suggests that not-for-profit hospital margins decline with an increase in uninsured patients, with little ability for hospitals to raise commercial insurance rates and federal subsidies of their own that do not offset the cost of the uninsured. The federal disproportionate share payments will drop in 2017 under the Affordable Care Act.
How many people will end up without insurance if the Supreme Court decides for the plaintiff in King v. Burwell is unclear. The case challenges the use of subsidies for health insurance under the Affordable Care Act, where federal officials established exchanges that sell health plans. States that created their own exchanges are unaffected. Arkansas, Delaware and Pennsylvania recently got approval to create state exchanges.