For non-Medicaid expansion states, charity care wipes out savings

Cost is the most common reason that states have opted out of Medicaid expansion under the Affordable Care Ac, but new research from Northwestern University and Columbia University's Mailman School of Public Health finds that those same 21 states face uncompensated care costs roughly equal to what they would have spent on expansion.

Researchers, led by Craig Garthwaite, assistant professor of strategy at Northwestern's Kellogg School of Management, analyzed 28 years of previously confidential hospital data provided by the American Hospital Association. The data, published as a National Bureau of Economic Research working paper, show each uninsured patient cost their state's hospitals about $900 a year in uncompensated care. Non-expansion states face a total of $6.4 billion in uncompensated care costs, according to the study, whereas earlier research from the Kaiser Family Foundation found expansion will cost the same states about $6.25 billion.

As a result, hospitals are  effectively serving as "insurers of last resort" within the healthcare sector by providing care to uninsured patients who cannot afford to pay their medical bills, according to an article by Kellogg Insight.

"Our results make it very hard for a governor or other policymaker to claim that the Affordable Care Act's Medicaid Expansion will cost their state 'too much' money," Garthwaite said in a statement. "Hospitals in those states already spend more providing uncompensated care to uninsured that would be covered by the expansion than the state would spend on expanding Medicaid. Ignoring these costs doesn't make them go away."

Garthwaite and his team also found that, contrary to popular perceptions, providers do not pass the cost of uncompensated care onto consumers by raising prices; instead, they found, affected hospitals are largely settling for lower profits. Nonprofit hospitals bear most of the weight. As most private hospitals are nonprofit firms, they must provide a "community benefit" to retain their tax exemption. As a result, it often falls on these hospitals to fill gaps in the social safety net in the form of uncompensated care, according to the study.

Indeed, if raising prices for privately-insured patients offset the cost of charity care, providers likely would have done it already, said co-author Matt Notowidigdo, associate professor of economics in the Weinberg College of Arts and Sciences at Northwestern.

A recent report found that while Medicaid expansion has reduced the uncompensated care burden, it has not given hospitals any significant increase in operating margins, FierceHealthFinance previously reported. An issue brief from the Kaiser Family Foundation found increased hospital revenue in expansion states as well.

To learn more:
- here's the working paper
- read the Kellogg Insight article
- read the study statement