• Flavors of cost shifting from the uninsured

    The Supreme Court’s ruling on the Medicaid expansion has made cost shifting from the uninsured a polite dinner topic again. From there it has sloshed over to blogs and Twitter. I’ll just make a few quick points before I head off to work:

    • A round up of empirical evidence on cost shifting from the uninsured is here and more on other types of costs shifting can be found in the FAQ.
    • Cost shifting from the uninsured comprises three different phenomena:
      1. Increased taxes to cover uncompensated care. To the extent that policy can get those being cared for to cough up some financial contributions  for that care (whether by purchase of insurance or direct payment, penalty, tax, whatever), this can be reduced.
      2. Premium-increasing adverse selection. If the uninsured are healthier on average than the insured, this causes premiums to be higher than they otherwise would be if everyone were insured. Some consider this a cost shift, a negative externality. Again, the way to remove it is obvious, but not everyone is agreed it’s worth the cost. Moreover, one could certainly call forced contributions toward health care a cost shift onto the healthy. This type of risk spreading really bothers some people, apparently.
      3. Forced charity. (I don’t know what else to call this.) This type of cost shifting is when hospitals and other providers offset shortfalls in payments from uncompensated “charity care.”* The story is that they increase prices for private payers (the insured and others who can pay full cost) so they can afford charity care. I’m not sure in what sense this makes it charity care since providers are, well, shifting the costs and it sounds like private payers are not voluntarily offering the support. We can discuss that in the comments. In any case, the way to reduce this type of cost shifting is to get those who are in need of the charity to pay something for their care, if possible.
    • I don’t believe (but could be wrong) that the empirical literature on cost shifting carefully distinguishes all these pathways.
    • Notice that all three could be reduced through an expansion of the welfare state. Since that’s taxpayer financed it effectively converts types 2 and 3 to a formal version of 1. We don’t tend to call Medicaid a cost shift, but it really is quite similar to 1 only, in my view, more humane and with increased incentive or at least possibility for preventative care, better care management, etc.
    • Finally, type 3 is not likely to be as large as people like to think it is. The evidence suggests it probably is fairly small. And that evidence may include the effects of 1 and 2. There must be limits to the extent to which a hospital can increase prices. Moreover, hospitals can and do adjust costs more than they cost shift. They also can and do cut back on charity care.

    * To be fair, some of this “charity care” could be required by law under EMTALA. I’m not an expert in the extent to which hospitals are compensated by government (e.g., via special Medicare or Medicaid payments and/or other programs) for their EMTALA care, if at all.

    @afrakt

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