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Posted September 1, 2004

Hospitals Caring for the Uninsured: A Strained Safety Net
Issues and Potential Solutions
Every year, the number of Americans without health insurance grows. The latest figures from the U.S. Bureau of the Census show the ranks of the uninsured have grown to 45 million nationally. About 1.2 million live in the Chicago metropolitan area.

Hospitals take the lead role in caring for this large and growing group. Nationally, hospitals provide about $21 billion in uncompensated care every year, most of it going to uninsured patients, according to the American Hospital Association. Locally, the 96 hospitals of the Metropolitan Chicago Health Care Council wrote off an estimated $1.8 billion in uncompensated care in 2003 – a figure that has risen steadily as the number of uninsured and underinsured patients, and the cost of providing care, have grown.

Caring for patients in need without regard to ability to pay has always been, and continues to be, a core element of the mission of hospitals. However, it is only one of the elements of their charitable mission. Society relies on hospitals to provide 24-hour access to emergency and trauma services, and high-tech/high-touch diagnosis and treatment for the entire range of human illnesses and injuries, from preventing diseases to treating broken bones, cancer and heart disease. The growing financial strain of caring for uninsured patients threatens that mission in many communities.

This overview outlines:

Both the problem of the uninsured and its growth are related to the way America finances health insurance. Public insurance is provided through Medicare for those over age 65 and the disabled, through Medicaid for the very poor and low-income pregnant women, state heath insurance programs (SCHIP) for low-income children, and veterans through the Veterans Health Administration. Nearly everyone else depends on private insurance sponsored by employers or purchased in the commercial insurance market, or goes without. As the cost of health insurance rises faster than inflation, private insurance is becoming less affordable, particularly for low-wage workers, and many are losing coverage.

Most of today’s uninsured are working people in low-paying jobs. Generally, they make too much money to qualify for Medicaid, but not enough to afford private health plans, which often cost thousands of dollars annually. Worse, private heath insurance is often unavailable at any price for those who need it most – people with chronic diseases or other health problems who have lost or never had employer-sponsored coverage.

While historically most uninsured workers were employed by companies that did not offer health plans, they are increasingly being joined by employees who cannot afford to pay the growing monthly premiums many employers are passing on to workers as health insurance costs rise. The problem tends to be more pronounced in urban areas, where health care costs are higher and there are many low-wage jobs. In the city of Chicago, 19.0% of full-time and 37.2% of part-time workers are uninsured, compared with 14.9% and 22.5% for the entire state of Illinois.

The problem is likely to get worse before it gets better. Princeton health economist Uwe Reinhardt, Ph.D., notes that if health insurance premiums continued to rise at the 15% rate seen in 2003, by 2014 the annual cost for coverage will rise from $9,000 to $36,000, or $1,000 more than the take-home pay of the bottom 1/3 of wage earners. While that rate of increase is clearly unsustainable, Reinhardt does expect high health care inflation to continue, resulting in more workers losing coverage or facing drastically increased “cost sharing” in the form of higher premiums, co-payments and deductibles. Low-wage workers will be increasingly hard pressed to afford these higher out-of-pocket costs. Already hospitals are seeing big increases in unpaid accounts for patients in this situation.

However, the problem of the uninsured is not limited to low income workers. In the metropolitan Chicago area, 21% of families with household incomes of $50,000 to $75,000 have one or more family member uninsured, as do 14.6% with incomes over $75,000.

While some higher-income uninsured people lose coverage when their income temporarily drops, often during periods of unemployment, some simply choose not to buy insurance. Hospitals try to protect their own capacity to assist patients in real financial need by trying to identify and bill uninsured patients who have sufficient income to pay for care. But billing even a high-earning uninsured patient can be difficult. In some cases patients who take a chance on “going bare” end up facing not only catastrophic hospital bills, but also illnesses or injuries that make it impossible for them to work. The hospital and society end up paying for their risky choice.

What this means in practice is that hospital emergency rooms examine every patient who comes in. Because patients who have no insurance are often turned away by private doctors and other providers, they often end up in the emergency room either because they are so sick that they have a true emergency, or because they don’t know where else to turn for primary care. About half of emergency room encounters by uninsured patients could have been handled in a doctor’s office or other primary care setting if the patient had access to one, according to a 2003 George Washington University study sponsored by the Robert Wood Johnson Foundation. Hospitals also often end up providing extensive care to uninsured patients who are admitted through the emergency room with injuries or life-threatening medical problems, including strokes, heart attacks and pneumonia.

The cost of failing to insure so many patients is high in both dollars and human suffering. Research shows that uninsured patients are less likely to receive preventive care, resulting in a higher incidence of disease and disability due to chronic conditions such as diabetes and high blood pressure. Uninsured patients often forgo needed care for acute conditions, such as infections, or delay seeking treatment for themselves and their children until a medical problem is acute, resulting in higher risks of complications, long-term disabilities and even death. Treatment costs are also often significantly higher when treatment is delayed.

Patients often can’t pay the staggering costs that can result – in the Chicago area, hospitals typically collect only 10% to 15% of charges for care to uninsured patients. And because most of these patients also cannot qualify for Medicaid or other public insurance programs, hospitals often have no alternative but to absorb most of the cost.

Because the uninsured are not evenly distributed geographically, neither is the financial burden of caring for them. It tends to fall disproportionately on hospitals that are economically challenged. Under-funded public insurance programs compound the problem for many of these same hospitals, many of which also serve large numbers of Medicare and Medicaid patients. In Illinois, hospitals receive on average only about 71% of the cost of care provided to Medicaid patients, and many hospitals lose about 10% on Medicare patients as well.

• Assistance in qualifying patients for Medicaid and other public and private financial aid. Most hospitals have specially-trained counselors who help uninsured patients apply for public aid, including Medicaid, Medicare, KidCare and FamilyCare, state programs for low-income workers. They help patients gather pay stubs, bank statements, car titles and other documents required by the state to qualify for Medicaid. Then they help patients fill out the complex forms needed to apply for aid.

• Help finding affordable primary care. Hospitals also have social workers and discharge planners who maintain contacts with community clinics and other primary care and follow-up providers that can provide care on a sliding scale or for no cost to low-income patients. Some hospitals make these services available through their own clinics and medical staffs.

• Reduced charges for uninsured patients. Most hospitals have guidelines for forgiving or reducing charges for low-income, uninsured patients. MCHC recommends that hospitals forgive charges completely for patients earning up to 100% of the federal poverty level ($15,670 for a family of three), and discount charges for patients up to 200% of the poverty level. Most hospital policies follow these guidelines, and many are more generous. Once a hospital has determined that a patient meets its standard, it writes off the balance as charity care.

• Affordable payment plans for all. Most hospitals work with patients to develop payment plans that allow patients to pay off balances over time according to their budgets.

These efforts go a long way toward mitigating the impact of the uninsured on both patients and hospitals, but they don’t solve the problem. For one thing, many uninsured patients don’t qualify for public assistance. For another, many never make it through the application process. Applying for public aid is a difficult, time-consuming and often embarrassing process. Often, patients have difficulty coming up with car titles, bank records and other required documentation of their income and assets. Once patients leave the hospital, financial counselors often have a hard time reaching them to complete aid applications or work out payment plans. When these patients fail to pay their bills, the hospital has little choice but to turn the accounts over to collections staff or an outside agency. Most of these balances end up being written off as bad debt, even though many of these patients could qualify for aid or charity care.

Even when the mechanisms for covering uninsured patients work well, and patients are qualified for public assistance or charity, there are still problems. Many patients enter the health care system in much worse shape than they would have if they had been insured and sought care earlier. After going through an aid application process, many patients are reluctant to return to the same hospital. As much as a hospital may be devoted to a charitable mission, it is difficult to overcome these understandable human behaviors.

Operating losses are a problem for all hospitals, whether they are structured as not-for-profits or are investor owned. To continue serving our communities, hospitals must continually invest in existing buildings and equipment, as well as in new technologies and expanded services so that all may benefit from advances in medical care. The latest in minimally invasive surgery, radio surgery treatment and advanced MRI and PET diagnostics help patients by offering alternatives to surgery and identifying health problems early, but are costly. And we all benefit from the 24-hour availability of emergency room and trauma services. But adding and maintaining these services takes a lot of money.

In large part due to losses on uninsured and Medicaid patients, many hospitals are having trouble keeping up. According to a 2003 study by the Healthcare Financial Management Association and GE Capital, 41% of hospitals nationwide do not spend enough to replace and refurbish buildings and equipment as they wear out, let alone keep up with community needs for new technologies and services. Most of these hospitals have operating margins of less than 2%. Even a non-profit hospital must run a 2% to 3% operating margin to simply keep up with ongoing maintenance costs.

Continually absorbing costs for uninsured and underinsured patients also puts pressure on hospitals to raise rates even more to insured patients. This in turn makes health insurance even less affordable, leading to even more uninsured patients.

• Make KidCare and FamilyCare programs available to more low-income families.
• Allow associations of small businesses to buy group coverage so they can offer more-affordable plans to employees.
• Support moves by large businesses to create group purchasing arrangements for contract and part-time workers.
• Provide coverage for catastrophic health care for all.

> Continue to the Uninsured Fact Sheet