As California’s uninsured rate plummeted during the first two years of the implementation of the Affordable Care Act (ACA), uncompensated care costs for California’s hospitals followed suit, declining 52% from $3.1 billion in 2013 to $1.5 billion in 2015, according to data from the California Office of Statewide Health Planning and Development (OSHPD). This progress may be in peril, however, if efforts to repeal and replace the ACA are successful and the uninsured population increases.
The most common way to measure the cost of uncompensated care is to combine charity care and bad debt. Charity care refers to the costs for patients with a demonstrated inability to pay. Bad debt refers to the costs for patients who were considered to have the financial ability to pay — or for whom the ability to pay was never determined — but who have not done so.
While we expected to see dropping uncompensated care costs because of the increase in Californians with health insurance under the ACA, the magnitude of the decline is notable when placed into historical context. The data show that in 2015, California hospitals’ uncompensated care costs as a percentage of operating costs reached 1.7% according to the author’s analysis of OSHPD Hospital Annual Financial Data — the lowest rate in more than a decade. This mirrors national trends. For the same year, the American Hospital Association reported that US hospital uncompensated care costs (charity care and bad debt) as a percentage of total hospital expenses reached a 25-year low of 4.2% (PDF).
Estimating the cost of hospital uncompensated care is an imperfect science, and the available data have limitations. For example, the California OSHPD data above do not include uncompensated care provided by Kaiser Foundation hospitals, which provide about 10% of general acute hospital care in California.
In addition, some hospital reimbursement rates (such as Medi-Cal and Medicare) often do not cover the costs of providing care. These shortfalls are not reflected in measures of uncompensated care, as the measure is not designed to capture under-compensated care.
Still, uncompensated care, as measured by OSHPD in the chart above and in other national metrics, has been tracked for years. The steep decline between 2013 and 2015 is unparalleled and a sign of major progress.
The uncertain future of the ACA makes it difficult to predict what will happen with health care financing. However, it is clear that if changes to federal health legislation increase the uninsured population, the uncompensated care burden on hospitals will rise again as fewer people can afford care they receive at hospitals. That won’t be good for California’s people or its hospitals.
Jen Joynt is an independent health care consultant based in Berkeley, California. Her areas of expertise include quality of care; hospital organization, strategy, and operations; health care workforce trends; and the California health care marketplace. She has authored several reports and policy briefings.