It Costs More to be Poor

Uninsured patients are the most financially vulnerable to hospital charges. Hospitals bill a high charge for medical services, with the expectation that a fraction of that is actually paid by insurance companies. With a large consumer base, commercial and government insurance programs negotiate for substantially lower rates. Meanwhile, , and thus are frequently tethered with substantial payments at the gross price.

To limit the cost of health care to the uninsured, California passed the Hospital Fair Pricing Act in 2006. The law requires that hospitals provide discounts to patients who were at or below 350% of the federal poverty line (FPL).

A study in Health Affairs reviewed the impact of the law, looking at data from the Office of Statewide Health Planning and Development (OSHPD). The study evaluated the amount of services provided by hospitals to the uninsured and the change in costs to the uninsured.

Hospitals generally complied with the law: In 2011, the study noted that 81% of hospitals charged uninsured patients Medicare rates if they were at or below 350% FPL. The total percentage of revenue generated from the uninsured dropped from 3.3% to 1.2%. Similarly, collection rates from the uninsured dropped significantly. Before the enactment of the law, hospitals collected 31 cents for every dollar charged. Afterward, collections decreased to 8 cents for every dollar.

The data from this study indicates California’s Hospital Fair Pricing Act achieved its goal of reducing the cost of health care to the uninsured.

The study also recommends three policy changes: defined eligibility for health care discounts, price ceilings for uninsured patients, and requirements that for-profit hospitals participate in limiting charges for the uninsured.

The Hospital Fair Pricing Act is a step in the right direction for providing financial relief for uninsured Californians. However, national adoption of a similar policy is up for debate. With hospital margins swaying on their payor mix, a decrease in pay from the uninsured will certainly receive resistance. Ultimately, reductions in payments for uninsured patients provide a humane reform to the cost of health care.

commentary by Neil Wingkun

Abstract

California’s Hospital Fair Pricing Act, passed in 2006, aims to protect uninsured patients from paying hospital gross charges: the full, undiscounted prices based on each hospital’s chargemaster. In this study I examined how the law affects the net price actually paid by uninsured patients–a question critical for evaluating the law’s impact. I found that from 2004 to 2012 the net price actually paid by uninsured patients shrank from 6 percent higher than Medicare prices to 68 percent lower than Medicare prices; the adjusted collection ratio, essentially the amount the hospital actually collected for every dollar in gross price charged, for uninsured patients dropped from 32 percent to 11 percent; and although hospitals have been increasingly less able to generate revenues from uninsured patients, they have raised the proportion of services provided to them in relation to total services provided to all patients. The substantial protection provided to uninsured patients by the California Hospital Fair Pricing Act has important implications for federal and state policy makers seeking to achieve a similar goal. States or Congress could legislate criteria determining the eligibility for discounted charges, mandate a lower price ceiling, and regulate for-profit hospitals in regard to uninsured patients. PMID: 25561645

Bai, G. Health Affairs. 2015; 34 (1): 64-70.