Caring for the Uninsured in New York

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Executive Summary

In this paper, we estimate the costs of uncompensated care in New York during 2005, along with the governmental revenues meant to offset those costs. We use two very different approaches to estimate the amount of uncompensated care provided to uninsured people. The first uses cost reports from hospitals and diagnostic and treatment centers in New York, budget figures for the U.S. Department of Veterans Affairs and the Indian Health Service, and physician survey data to provide an estimate of the amount of uncompensated care reported by providers. In the second, we use household survey data to provide an alternative estimate based on the amount of uncompensated care reported by the uninsured themselves. Then, the third section of this paper estimates how much additional medical care the uninsured would use if they were fully insured. This is not the same as the cost of a new health plan to cover the uninsured, but rather the additional resources that would be expended on their medical care if they had coverage. The final section examines governmental sources of payments for uncompensated care.

The main results are as follows:

• Using cost reports and physician survey data, we estimate that $2.8 billion of uncompensated care is provided to the uninsured. Of this, $1.8 billion is provided by hospitals, and another $412 million is provided by physicians; the remainder is provided by health centers, Veterans Affairs facilities, and the Indian Health Service.
• Using data from the Medical Expenditure Panel household survey, we estimate that $2.7 billion in uncompensated care costs is provided to those who are uninsured for the full year or for the part of the year. Of this, 75 percent is provided to the full-year uninsured and the remainder to the part-year uninsured.
• Either of these sources could understate the amount of uncompensated care provided to the uninsured. The $2.8 billion based on cost reports and physician surveys does not include some uncompensated care provided in hospitals (e.g., skilled nursing care), as well as free or discounted care provided by pharmacists, pharmaceutical manufacturers, podiatrists, optometrists, chiropractors, and other providers. Data from the Medical Expenditure Panel Survey is known to understate actual expenditures, and we have made an adjustment to align the survey data with the National Health Accounts, but this adjustment could still understate actual expenditures. We do not anticipate that either source of undercounting would be large, but acknowledge that the actual level of uncompensated care could be in the neighborhood of $3.0 billion. The provider reports on uncompensated care do not allow us to separate costs of the uninsured versus those for people with coverage who do not pay their cost sharing, for example. Accordingly, the provider-based estimate may overstate uninsured costs. Despite their imperfections, the two different approaches to estimating costs yield similar results, which raises confidence in their accuracy.
• We estimate that as of 2005, about $3.5 billion of government funding is transferred to providers of uninsured care because of their safety net role, as opposed to other reasons for public subsidy. Payments go mainly to hospitals, but also to clinics. Of this total, $622 million is provided by state sources, $641 million by local sources, and over $2.2 billion by the federal government. State and local funding comes through state bad debt and charity care pools, several Medicaid disproportionate share hospital (DSH) and upper payment limit (UPL) programs (with local share for local public hospitals), state public health grants, and direct local support for public hospitals. Federal support comes as Medicaid matching funds, as well as fully federal contributions from Medicare's DSH and indirect medical education payments (IME), direct provision of care by the Veterans Affairs Department and the Indian Health Services, and through grants such as the Ryan White program and the Maternal and Child Health block grant.
• This estimate of $3.5 billion does not count all funds that are directed to safety net hospitals and clinics. We attribute half of the DSH and UPL payments just noted to Medicaid payment shortfalls, for example. Other programs that subsidize hospitals are omitted where they are not clearly tied to provision of uncompensated care or safety net status.
• Our estimates of funding attributable to the uninsured could overstate (or understate) the amount actually supporting the uninsured. Factors that might change the amount of estimated subsidy include the following:
  
  -- We have omitted or included programs based on their perceived relationship to uninsured/uncompensated care, and making different judgments would alter our estimates.
  
  -- The share of payments under various programs that we attribute to support for the uninsured may be smaller or larger than estimated, relative to the share serving other purposes.
  
  -- The dollars observed going to providers may be offset by changes in other unobserved funding flows among institutions and governments (which our analysis does not attempt to capture).
• Some additional funds available to cover uninsured care may come from some hospitals' financial surpluses (or positive margins), from private payers, and from philanthropy. However, those hospitals that may have the ability to charge private payers higher prices in response to bad debt and charity care services or Medicaid shortfalls typically do not have many uninsured patients and, conversely, those with large numbers of uninsured people have relatively small private-pay revenues. Interviewees also said that since deregulation of hospital rates, private payers have not paid charges very much above cost, as they have in many other states. Moreover, the large amount of money that can be identifi ed as coming through government suggests that the amount coming through private sources is relatively small, other than physician charity through free or reduced-fee care.
• Our estimates of the cost of the additional care that would be provided to the uninsured if they were insured for the full year is $4.1 billion--$3.0 billion for full-year uninsured patients and $1.1 billion for the part-year uninsured. This is in addition to the $7.2 billion already spent by or on behalf of the uninsured, including $2.7-$2.8 billion in uncompensated care. These estimated incremental costs mainly reflect the additional amounts of care and higher provider payment rates characteristic of insured people relative to the uninsured. The $4.1 billion amounts to 3.0 percent of personal health care spending in New York, or 6.2 percent of acute care spending on the nonelderly. These estimates are not the full costs of a new plan to cover all or most of the uninsured. Such a plan would also have additional costs from displacing some private coverage and reducing out-of-pocket spending by individuals and families.
• The estimated revenues attributable to uninsured/uncompensated care exceed the costs of such care under either estimate of costs by more than half a billion dollars. This difference is partly created by our estimating that certain revenue streams are half attributable to uncompensated care, half to Medicaid payment shortfalls. To keep this finding in perspective, we note that from a provider's view, the estimated "surplus" on uninsured/uncompensated care is more than offset by the very large Medicaid shortfall in hospital payment alone. The two hospital shortfalls combined exceed hospital revenues by over half a billion dollars.
• The costs of uninsurance are a social burden that would be alleviated, but not ended, by universal coverage. Some support for uncompensated care will continue to be needed even under universal coverage. Nor will covering the currently uninsured fix the Medicaid shortfall, whether it is mainly due to high costs or low payments. Moreover, only a share of current support for uninsured/uncompensated care could be reallocated to help pay for new insurance. The shift would cause major reallocations of funds across provider and health plan constituencies and would have major political repercussions. Moreover, most revenues now come on a voluntary basis from local government, along with the federal match these contributions attract. Shifting funds from supporting local medical infrastructure to supporting statewide coverage expansion could substantially reduce willingness to contribute.

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