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Health Care Spending Under Reform: Less Uncompensated Care and Lower Costs to Small Employers

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Document date: January 28, 2010
Released online: January 28, 2010

Abstract

In this brief, we estimate that the annual cost of uncompensated health care for the uninsured would decrease from $61 billion to $25 billion under health reform legislation passed in the House. Because the government finances about three-quarters of uncompensated care, up to $27 billion per year could be used to offset the expansion of Medicaid and subsidies to employers and individuals. Overall, employers' net costs would increase by 2.9 percent over the current system, but small employers' net costs would decrease 8 percent due to employer subsidies, the expansion of Medicaid, and exemptions from penalties for not offering insurance.


The text below is an excerpt from the complete document. Read the full brief in PDF format.

Introduction

During the debate over health care reform, the cost of health insurance for smaller employers has been a particular concern, since they are currently at a significant disadvantage in purchasing coverage for employees compared to larger firms.1 Compared to larger firms, smaller firms face higher administrative loads on small-group insurance products, have a much greater variance in health insurance premiums, and tend to have lower wage workers who benefit less, on average, from the exclusion of employer-sponsored insurance premiums from taxable wages. As a result, smaller employers are currently much less likely to purchase insurance on behalf of their employees, and
their employees are more likely to be uninsured. A key objective of the House bill is to reduce the disadvantages that small employers currently face in providing health insurance to their employees.

The United States now spends considerable sums on the medical needs of the uninsured. This spending puts significant strain on the health care system because the uninsured receive billions of dollars worth of “uncompensated” care—medical care that is either freely donated by providers or results in an unpaid bill. Hadley et al. (2008) estimated that in 2008 the uninsured received about $56 billion in uncompensated care during the time they lacked insurance coverage.2 The government paid the lion’s share of this bill—about $43 billion—through Medicare and Medicaid Disproportionate Share Hospital (DSH) payments, graduate medical education payments, various other federal programs, and state and local tax appropriations. To the extent that uninsured people gain insurance coverage under reform, these resources could be redirected, for example, towards offsetting government costs.

In this brief, we compare the distribution of health care spending in the current system to spending under reform, in particular looking at how spending would change for employers of different sizes, government, families, and uncompensated care. We focus this analysis on the bill passed by the House of Representatives on November 7, 2009, using a microsimulation model to estimate cost and coverage implications of the key provisions of the Affordable Health Care for America Act (H.R. 3962).3 Results suggest that reform would lead to lower costs for small firms while expanding coverage among employees and their dependents. In addition, we find that savings from decreases in uncompensated care under reform could provide significant spending offsets for federal and state governments. In the discussion section, we suggest how the results could differ under the proposed Senate bill.

(End of excerpt. The entire brief is available in PDF format.)



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