More Evidence Suggests Obamacare Is Not Driving Hospitals Bankrupt

One of the most intuitively appealing arguments for ensuring that everyone has health insurance is the claim that uninsured patients crowd emergency rooms but don’t pay their bills. Hospitals present these bills to government, and taxpayers end up paying. Health Affairs has a new estimate of these costs:

We estimated providers’ uncompensated care costs in 2013 to be between $74.9 billion and $84.9 billion. We calculated that in the aggregate, at least 65 percent of providers’ uncompensated care costs were offset by government payments designed to cover the costs.

At least $46.7 billion to $55.2 billion of this uncompensated care is covered by taxpayers. To put this in perspective, national health spending in 2013 is estimated to be $2.9 trillion. So, the mid-point of the estimate, $51 billion, amounts to only 1.75 percent of national health spending.

The flip side is that about $29 billion—less than one percent of national health spending and just three percent of hospital revenues—is, therefore, actually uncompensated to hospitals. And even this figure is inflated, because hospitals calculate their uncompensated care using inflated list prices (the “chargemaster”) which no informed payer pays. So, there is really no plausible argument that the tiny fraction of care that is actually uncompensated is causing a financial crisis for hospitals.

On the other hand, another study in the same issue of Health Affairs concludes that Obamacare will more than double the profit margins for hospitals’ emergency departments:

We estimated that hospital revenue from ED care exceeded costs for that care by $6.1 billion in 2009, representing a profit margin of 7.8 percent (net revenue expressed as a percentage of total revenue). However, this is primarily because hospitals make enough profit on the privately insured ($17 billion) to cover underpayment from all other payer groups, such as Medicare, Medicaid, and unreimbursed care. Assuming current payer reimbursement rates, ACA reforms could result in an additional 4.4-percentage-point increase in profit margins for hospital-based EDs compared to what could be the case without the reforms.

In other words, the political buzz claiming that Obamacare will reduce ED use by motivating patients to get timely care from primary-care physicians continues to be exposed as idle chatter. The scholars who wrote this article relied on a solid base of evidence that insurance increases ED use, it doesn’t decrease it.

Under Obamacare, hospitals will continue to roll in the money, and are unlikely to become more productive.

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For the pivotal alternative to Obamacare, please see the Independent Institute’s widely acclaimed book: Priceless: Curing the Healthcare Crisis, by John C. Goodman.