Hospital Uncompensated Care, 2014

May 4, 2016

A drawing of a hospital.2014 marked the launch of the health insurance marketplaces and Medicaid expansion under the Affordable Care Act (ACA). These programs expanded health insurance coverage to many previously uninsured residents, resulting in sharp decreases in the uninsured rate both nationwide and in Michigan. Expanded access to health insurance can benefit health care providers, such as hospitals, financially through reducing their uncompensated care burden.

Hospitals have traditionally provided care for free and/or at reduced prices to indigent and uninsured patients as part of their own social mission and to meet regulatory requirements. For example, non-profit hospitals are required to participate in community benefit activities, such as providing charity care, in order to maintain their tax-exempt status, a financial benefit for hospitals. Tax exempt status for hospitals nationwide was valued at over $24 billion in 2011.

Charity care is delivered 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. In order to see if hospitals have benefited from the ACA coverage expansion, particularly the optional Medicaid expansion, CHRT examined uncompensated care trends and other indicators for hospitals in Michigan and other states.

Key findings include:

  • Uncompensated care costs for Michigan hospitals decreased by almost 23 percent from 2013 to 2014, with most of the decrease occurring for charity care.
  • Hospitals in Medicaid expansion states experienced much sharper decreases in uncompensated care costs from 2013 to 2014 (27 percent) compared to those in non-expansion states (3 percent).
  • In Michigan, uncompensated care’s share of operating expenses fell in 2014, and operating margins also improved from 2013 levels. However, operating margins varied by location.
  • The number of Medicaid inpatient days and outpatient visits at Michigan hospitals increased by almost 8 percent in 2014, while other patient volume fell by almost 3 percent. Overall, patient volume was relatively stable from 2013 to 2014.