Do the uninsured demand less care? Evidence from Maryland’s hospitals

Abstract

Uninsured individuals receive fewer healthcare services for at least three reasons: responsibility for the entire bill, higher prices, and potential provider reductions for concern of nonpayment. I isolate reductions when uninsured patients are solely financially responsible by capitalizing on Maryland’s highly regulated health care system. Prices are set by the state, are uniform across all patients, and hospitals are compensated for free care and bad debt. I use a unique feature of the data, multiple readmissions for patients who gain or lose insurance between visits, to isolate the reductions in quantity demanded when individuals are faced with paying the full price without an insurance contribution. A Blinder–Oaxaca decomposition estimates uninsured individuals receive 6% fewer services after accounting for differences in patient, illness, and hospital characteristics than when these same individuals are insured.

Appendices

Appendix 1: Details of base rate adjustments

As hospitals have different underlying costs, they are not paid uniformly for an APRDRG weight of 1. The hospital-specific payment for a DRG of weight 1 is called a hospital’s base rate. To derive a hospital’s base rate, one takes the ratio of allowable charges to the hospital’s case mix adjusted discharges (CMAD). CMAD is the sum of all APRDRG weights for patients treated in the hospital in that year. Allowable charges differ from total charges in a few important ways, not all charges from the hospital are included in the approved charges calculation. Specifically, patients who stay for only one night are excluded from allowable charges, as are some patients that are deemed to be outliers. Additionally, there are a few additional adjustments. The first adjustment is for inflation and productivity using Global Insight’s index, which measures the effect of general inflation in the economy on health care expenses. The second adjustment is a volume adjustment, which relies upon a historically made assumption about variable costs. The adjustment works as follows. If a hospital’s service volume increased 10% in a year, in calculating the following years allowable revenue, only 85 percent of the increase would be considered as admissible charges. This is assumed to be the variable cost portion of the increased revenue of the hospital. The remaining adjustments are small in comparison to the two above, but for the sake of completeness are detailed below.The third adjustment considers any changes in the proportion of Medicare/Medicaid patients to the hospital. This adjustment exists because Medicare and Medicaid only pay 94% of charges. If there is growth in Medicare/Medicaid then it could be disadvantageous to a hospital’s bottom line. For illustration, consider the following example of a hospital with 200 million in charges and 100 million of those charges belonging to Medicare and Medicaid patients. The discount from the hospital to the government is 6 million: $(1-.94)*100$ million. The existing $6 million discount is taken into account in the charge structure. An adjustment would be made only on the basis of growth in the amount of Medicare and Medicaid patients. If the total charges of the hospital remained at 200 million, but now 150 million was attributable to Medicare and Medicaid, this growth in government-insured individuals induces a volume adjustment to this hospital. With 150 million in charges attribute to governmental insurance, this hospital would have a 9 million dollar shortfall, but 6 million was already accounted for in the initial cost structure. The volume adjustment covers this 3 million of additional discounts to the government. When half of the hospital’s charges were governmental, the hospital was getting 3 million of revenue. To not disadvantage the hospital when its governmental charges rise to 150, Maryland’s adjustment takes the 3 million ‘discount’ that previously was revenue, and simply increases the its initial charges by this amount. Now this hospital would be credited with 203 million in aggregate charges, its initial 200 million plus the 3 million discount for the government. The fourth adjustment pertains to capital investment, certificate-of-need project adjustments. If a hospital has major renovations, a portion of those costs can be covered by an increased base rate. The fifth adjustment is an adjustment for medical education. There are two types of medical education expenses, direct medical education expenses (DME) and indirect medical education expenses (IME). Both of these expenses are built into the base rate in levels. Thus, any adjustment to the base rate would be because of growth in DME or IME. For example, if a program added two more residents, their salaries would be an increase in DME. Finally, there is an adjustment for changes in the rate of bad debt (uncompensated care). To calculate future uncompensated care, an average is taken of previous rates of uncompensated care and a prediction of uncompensated care based on a regression. Again, only changes in uncompensated care require an adjustment; levels are built into the base rate.

Appendix 2: Comparisons to medicaid with high and low risk illnesses

See Fig. 7

Fig. 7

Reductions in services for individuals on Medicaid compared to private insurance by average income by zip code of residence quartiles by high and low risk of mortality illnesses. Note This figure is replicating Fig. 6 looking at differences in service provision for individuals with private insurance compared to Medicaid. This figure displays the Coefficient term estimated from Eq. 2 by high(&low) risk of mortality for each income quartile residential zip-code

Appendix 3: Variation in Charges per Weight by insurance status and hospital

See Table 6.

Table 6 Charges per Weight by hospital ID and payer class

Appendix 4: Replication excluding charity care

See Table 7 and 8.

Table 7 Blinder Oaxaca decomposition for individuals under 65 who switch insurance status, gain, or lose insurance: excluding charity care

Table 8 Blinder Oaxaca decomposition by insurance with high and low risk illnesses: excluding charity care

Appendix 5

See Table 9.

Table 9 OLS coefficients underlying Blinder Oaxaca decomposition

Appendix 6

See Table 10.

Table 10 Demographic characteristics for both the hospital inpatient population and a sample of individuals who switched insurance status on subsequent inpatient visits