Colorado hospitals have a long tradition of providing medical care to patients regardless of their ability to pay. Through a combination of community benefit policies, charity care, bad debt and underfunded care—resulting from Medicare, Medicaid and other government program payment shortfalls—Colorado hospitals provided more than $1.7 billion in uncompensated and undercompensated care in 2012.
While Colorado hospitals are committed to absorbing as many costs as possible for patients unable to pay for health care services they receive, it’s important for patients, policy makers and other constituencies to understand the impact of uncompensated and under-compensated health care across our state.
Terms to Understand
Uncompensated Care is the total cost of hospital care provided for which no payment was received from the patient or an insurer. Uncompensated care is the sum of bad debt and charity care at cost, both described in more detail below.
Charity Care is the dollar value of free care provided by hospitals to patients who are unable to pay their medical bills. It represents expenses for which hospitals never expected to be reimbursed. A patient’s ability to pay is determined by a hospital’s charity care or financial assistance policy, which typically considers factors such as individual and family income, assets, employment status or availability of alternate funding sources. Charity care determinations are typically made prior to admission; however, it may also be granted later to allow for emergencies or a lack of information about the patient’s financial status at the time of admission.
Bad Debt is incurred when a hospital cannot obtain reimbursement for care provided because a patient is either unable or unwilling to pay their bills. Unlike charity care, bad debt involves situations where the patient did not request or qualify for financial assistance. For uninsured patients, the amount of bad debt can include all or any portion of the unpaid bill. For insured patients, the unpaid portions of the bill that are the patient’s responsibility—such as co-pays and deductibles—are counted as bad debt.
Undercompensated care (or underfunded care) is associated with governmental programs such as Medicare and Medicaid. These programs have historically paid well below the cost of providing care, as one of the charts below illustrates.
Consequences of uncompensated and undercompensated care
The costs generated by uncompensated and undercompensated care must be paid by someone. The costs must either be absorbed by hospitals—which ultimately results in a decrease in health care services and access to care—or shifted to private insurers. This practice is referred to as “cost shifting,” and it is one of the driving forces of escalating health care costs.
The cost shift affects ALL Coloradans, not just those without insurance coverage. When hospitals raise their rates to cover unpaid costs, private insurers inevitably follow suit and pass the cost on to employers in the form of higher insurance premiums. Businesses must then decide whether to reduce employee benefits or ask employees to pay a greater share of insurance premiums.
The provider fee’s effect on uncompensated and undercompensated care
The Colorado hospital provider fee helped reduce Medicaid uncompensated and undercompensated care by $161 million in 2012. The provider fee is an assessment on hospitals by the State of Colorado. The resulting revenue is used to draw a dollar-for-dollar federal match that is used to cover the uninsured by expanding eligibility for Medicaid and Child Health Plan Plus (CHP+) and increase Medicaid reimbursements, without placing any burden on Colorado taxpayers. Click here to learn more about the provider fee in Colorado. Unfortunately, these improvements have been more than offset by reductions in Medicare payments. In 2012, Colorado hospitals received $257 million less for providing care for Medicare patients compared to in 2009.
Colorado hospitals provided more than $1.7 billion in uncompensated and undercompensated care in 2012. Uncompensated care (a combination of charity care and bad debt) represent approximately $500 million of the total, while Medicare and Medicaid underpayments accounted for approximately $1.2 billion.
As of 2012, Colorado hospitals receive $0.74 in government payments for every $1.00 spent providing services to Medicare patients, $0.79 for every $1.00 spent providing care to Medicaid patients and $1.54 for every dollar spent providing care to patients with private insurance coverage.