Nearly one year after consumers gained access to expanded health coverage under Medicaid and the public exchanges, many hospitals are questioning whether patients who refuse to purchase insurance coverage should be eligible to receive charitable discounts on their care.
A recent article published by Kaiser Health News notes that most hospital leaders across the country are considering whether their charity care policies should be tightened as a result of patients’ increased access to more affordable coverage options. One New Hampshire hospital profiled in the article has completely excluded from charity care eligibility all patients who qualify for, yet refuse to purchase, health coverage.
While restructuring eligibility criteria for charity care programs may seem like a natural response to an expansion in insurance coverage, our research suggests that the costs of a tighter charity care policy may outweigh the benefits.
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It’s true that coverage expansion is likely to result in decreased demand for charity care in the aggregate because more people have insurance; however, it’ is important to consider the level of coverage offered by the most popular insurance products purchased on the exchanges.
Enrollment data from the current plan year indicate that 62% of exchange enrollees purchased less expensive silver plans, and 19% chose the least expensive bronze plans, which have deductibles averaging $2,500 and $4,300, respectively. With the likelihood that most patients will incur significant out-of-pocket obligations before insurance companies become responsible for payment, hospitals may continue to face difficulty in collecting large balances from newly-insured patients.
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Due to high cost sharing in most exchange plans, hospitals that tighten their charity care policy to exclude commercially-insured patients may realize only a slight increase in overall revenue. Indeed, we've found that eliminating charity care for those with commercial insurance increases the proportion of billings subject to collection; however, the increased costs of collecting the additional revenue and the increase in bad debt write-offs brought into question the long-term viability of such a strict policy.
Moreover, the resulting decrease in charity care may raise questions about a hospital’s fulfillment of its charitable mission, leading some to question its tax-exempt status. We found that preserving access to charitable discounting for some commercially-insured patients reduced bad debt write-offs and increased net payments when compared to a more limited discounting policy.