Hospitals as Insurers of Last Resort

Craig Garthwaite, Tal Gross, Matthew J. Notowidigdo

NBER Working Paper No. 21290
Issued in June 2015
NBER Program(s):Health Care, Public Economics

American hospitals are required to provide emergency medical care to the uninsured. We use previously confidential hospital financial data to study the resulting uncompensated care, medical care for which no payment is received. We use both panel-data methods and case studies from state-wide Medicaid disenrollments and find that the uncompensated care costs of hospitals increase in response to the size of the uninsured population. The results suggest that each additional uninsured person costs local hospitals $900 each year in uncompensated care. Similarly, the closure of a nearby hospital increases the uncompensated care costs of remaining hospitals. Increases in the uninsured population also lower hospital profit margins, which suggests that hospitals cannot simply pass along all increased costs onto privately insured patients. For-profit hospitals are less affected by these factors, suggesting that non-profit hospitals serve a unique role as part of the social insurance system.

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Acknowledgments

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Document Object Identifier (DOI): 10.3386/w21290

Published: Craig Garthwaite & Tal Gross & Matthew J. Notowidigdo, 2018. "Hospitals as Insurers of Last Resort," American Economic Journal: Applied Economics, vol 10(1), pages 1-39.

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