Employers know with astonishing accuracy how much they pay for their employee’s health insurance coverage. An annual survey conducted by the Kaiser Family Foundation/Health Research & Education Trust found that annual premiums averaged $18,142 in 2016 (up 3% from 2015) and workers paid approximately $5277 toward the cost of their coverage.
Large, white collar employers are likely to provide insurance benefits as a means of attracting valuable employees and retaining this talent. It’s a valuable piece of their business, and it’s worth it to pay the high cost of coverage for employees and their families. But it’s often argued that employers are also indirectly paying the bill for those who do not have health insurance through a market factor known as “uncompensated care.”
Uncompensated care is the cost of treatment provided to those who cannot or do not pay, whether it’s with insurance, Medicare/Medicaid, or from their own pockets. The American Hospital Association (AHA) calculates uncompensated care by looking at two things:
Adding these together on a national scale gives us a good idea of the total cost of uncompensated care. Some hospitals are able to plan for the amount of financial assistance they offer each year based on historical data, and they do try to budget for it. However, uncompensated care costs have been steadily rising each year. According to the AHA, the national number rose from $12.1 billion in 1990 to $35.7 billion in 2015. The 2015 number represents 4.2% of hospitals’ total expenses, the lowest in 26 years. The enactment of the Affordable Care Act did cause a dip in the number of uninsured Americans, though we’re likely to see costs rise once again if it’s successfully repealed.
The Congressional Budget Office’s latest estimate on the AHCA predicts that 24 million people will join the ranks of the uninsured. In turn, this would create a rise in the uncompensated care figures - there is concern that this number could reach $1.1 trillion by 2028.
Hospitals do have strategies for absorbing the costs of providing care to those who cannot pay.
Many argue that hospitals use one other tactic: charging privately insured patients to make up the cost. Employers are concerned that they may be footing the bill for uncompensated and undercompensated care.
There are arguments on both sides of this issue, and it’s unclear exactly how much it may affect an employer’s health benefits spend. The Kaiser Family Foundation’s research shows that private insurers are overpaying the hospital’s costs by 30% while Medicare and Medicaid payments are generally less than the hospital’s costs.
“That private insurance payments exceed hospitals’ costs by a considerable amount enables hospitals to finance Medicare and Medicaid underpayments, as well as other expenditure items hospitals determined to be part of their missions.”
But is this how hospitals are actually compensating for shortfalls in payments? Other data suggests this is not the case. For example, the cost of uncompensated care as a share of hospitals’ expenses has remained relatively stable over the years (hovering between 4.5-6%), even as the rate of uninsured people has grown. So theoretically, hospitals would be asking for larger and larger profit margins from private insurance payments IF the percentage of uncompensated care were really being covered by employers.
“The value of uncompensated care in 2013 was $84.9 billion, and government sources provided $53.3 billion in payments to providers to help offset these costs. Of the remaining $31.6 billion in uncompensated care, $10.5 billion is charity care provided by office-based physicians (Table 3), which leaves $21.1 billion in uncompensated care costs that arguably could be financed by private insurance in the form of higher payments and ultimately higher insurance premiums in 2013.”
$21.1 billion is not just a drop in the bucket. Even spread across all the private insurance offered by employers, this represents approximately 2.3% of total expenditure. Not a huge chunk, but enough to justify the worry of employers who see the AHCA coming and are concerned about uncompensated care.
What can employers do? Artemis Health has a few thoughts to share: