Send this page to a friend

Posted September 1, 2004

• Bad debt – A charge for a service that a health care provider writes off as uncollectible.
• Most bad debt starts out as self-pay accounts and is reclassified as bad debt after unsuccessful attempts to collect it.
• Bad debt may be re-classified as charity care, typically if the patient has very low income and no health insurance.
• Due to the extensive documentation and cooperation needed from patients to establish eligibility for charity care, many charges to indigent patients are never classified as charity care, and written off as bad debt.

• Charitable mission – Organizations that have a recognized charitable purpose provide services, including education, religious services and health care, benefiting the community as a whole, rather than individuals.
• In most cases, providing care to indigent patients is considered part of a hospital’s charitable mission, as are other community benefits, such as 24-hour access to emergency and trauma care.
• Organizations with a charitable mission are granted exemptions from income, property, sales and other taxes by the IRS and other state, county and municipal entities.

• Charity care – Services provided at a reduced charge or no charge to patients who cannot afford to pay full charges for their care.
• Most hospitals have guidelines for granting charity care to patients based on their income or financial situation.
• Most often dismiss charges for patients earning up to 100% to 200% of the poverty level and discount charges for those earning as much as 400% or 500% of the poverty level.
• Because qualifying patients for charity care requires extensive documentation and cooperation from patients, many who may qualify are never granted discounts because the qualification process is never completed.

• Co-payment – A charge insured patients must pay for services separate from the amount covered by insurance.
• Co-payments may be fixed, such as a $10 or $20 payment for each doctor’s office visit, or may be a percentage of a contracted rate, such as 20% of the bill for lab services or a hospital visit.
• Insurers often require patients to pay higher co-payments for using doctors or other providers who are not part of the plan’s contracted network as a way of encouraging patients to see contracted providers with whom insurers have negotiated lower rates and/or lower cost treatment protocols.
• As health insurance costs rise, many employers are raising co-payments as a way of spreading costs and lowering unnecessary utilization. In some cases, co-payments are so high that patients have a hard time paying them, adding to the problem of the uninsured.

• Deductible – An amount insured patients must pay for medical services before insurance coverage begins to cover charges.
• Health insurance plans typically cover services after the patient pays for the first $250 to $500 of medical charges for an individual and $500 to $1,000 for a family in a calendar year.
• As with co-payments, deductibles have been increasing, with some now exceeding $1,000 per individual and $5,000 per family.
• High deductibles effectively leave patients uninsured for many services, and lower-income individuals may have trouble paying for charges that fall within the deductible.

• Excluded or uncovered services – Any health care service not covered by a particular health insurance plan, such as speech or occupational therapy, nursing home care in certain situations, routine checkups and other services not required to treat a specific, diagnosed condition.

• FamilyCare – A health insurance program run by the State of Illinois offering affordable coverage to low-income families who do not have coverage through employers, do not qualify for Medicaid and otherwise might go uninsured.

• Federal poverty guidelines – Income levels set by the U.S. Department of Health and Human Services for purposes of determining eligibility for aid under programs for the poor, including Medicaid and KidCare.
• Eligibility is often expressed as a percentage multiple of the poverty guidelines, such as 125% or 185%, with multiples for programs for pregnant women and children usually higher than those for adults.
• For 2004, the guidelines range from an annual income of $9,310 for an individual to $18,850 for a family of four to $31,570 for a family of eight.
• Hospitals also often use federal poverty guidelines as one factor in determining eligibility for charity care discounts to uninsured patients.

• KidCare – A health insurance program run by the State of Illinois offering affordable coverage to children in low-income families that do not qualify for Medicaid and who might otherwise go uninsured.

• Low-wage jobs – Full-time jobs that do not pay enough to raise a family of four above the federal poverty level. Such jobs typically pay below $9.00 per hour or $18,800 per year.
• Low-wage workers make up about 24% of the workforce and make an average of $7.09 per hour, compared with an average of $17.15 for all U.S. workers.
• Low-wage workers are disproportionately female, Hispanic or black, age 25 or younger, have no college education and work in service industries
• In Illinois , 46.6% of families with incomes below $25,000 have at least one member without insurance, or nearly triple the rate of 16.1% for families earning more than $75,000.

• Medicaid – A combined federal-state health insurance program for the indigent, pregnant women and children in low-income families, and individuals leaving welfare for work.
• About 43 million Americans are covered by Medicaid.

• Medically indigent – A person who lacks the resources or health insurance coverage to pay for health services they have received or require to treat an illness or injury.
• These patients are typically defined as earning less than 200% of the federal poverty level and have less than $2,500 in assets. Such patients often, but do not always, qualify for grants through state Medicaid programs.

• Medicare – A federal health insurance program for people 65 years of age and older, some disabled people under 65 years of age, and people with End-Stage Renal Disease (permanent kidney failure treated with dialysis or a transplant).
• Beneficiaries pay premiums for coverage of doctor services as well as deductibles and co-payments for all services.
• About 40 million Americans are covered by Medicare.

• Self-pay – Any amount a patient owes for medical services not covered by insurance, including co-payments, deductibles and charges for excluded services to insured patients, and all charges for services to uninsured patients not covered by Medicare or Medicaid or classified as charity care.

• Uninsured – Any patient lacking public or private health care coverage.
• In 2003, 45 million Americans, or 15.6% of the population, were uninsured for the entire year, including low-income workers who do not receive benefits from their employers and cannot afford to buy insurance, and those who have enough income to buy insurance, but choose not to.

> Continue to Tool Kit 3: Patient Safety