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Hospitals as Insurers of Last Resort

Author

Listed:
  • Craig Garthwaite
  • Tal Gross
  • Matthew J. Notowidigdo

Abstract

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. Using both panel-data methods and case studies, we find that each additional uninsured person costs hospitals approximately $800 each year. Increases in the uninsured population also lower hospital profit margins, suggesting that hospitals do not pass along all uncompensated-care costs to other parties such as hospital employees or privately insured patients. A hospital's uncompensated-care costs also increase when a neighboring hospital closes.

Suggested Citation

  • Craig Garthwaite & Tal Gross & Matthew J. Notowidigdo, 2018. "Hospitals as Insurers of Last Resort," American Economic Journal: Applied Economics, American Economic Association, vol. 10(1), pages 1-39, January.
  • Handle: RePEc:aea:aejapp:v:10:y:2018:i:1:p:1-39
    Note: DOI: 10.1257/app.20150581
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    References listed on IDEAS

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    1. Rask, Kevin N. & Rask, Kimberly J., 2000. "Public insurance substituting for private insurance: new evidence regarding public hospitals, uncompensated care funds, and medicaid," Journal of Health Economics, Elsevier, vol. 19(1), pages 1-31, January.
    2. Gross, Tal & Notowidigdo, Matthew J., 2011. "Health insurance and the consumer bankruptcy decision: Evidence from expansions of Medicaid," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 767-778, August.
    3. Anthony T. Lo Sasso & Bruce D. Meyer, 2006. "The Health Care Safety Net and Crowd-Out of Private Health Insurance," Working Papers 0417, Harris School of Public Policy Studies, University of Chicago.
    4. Dranove, David, 1988. "Pricing by non-profit institutions : The case of hospital cost-shifting," Journal of Health Economics, Elsevier, vol. 7(1), pages 47-57, March.
    5. Miller, Sarah, 2012. "The effect of insurance on emergency room visits: An analysis of the 2006 Massachusetts health reform," Journal of Public Economics, Elsevier, vol. 96(11), pages 893-908.
    6. Jeffrey Clemens & Joshua D. Gottlieb, 2017. "In the Shadow of a Giant: Medicare’s Influence on Private Physician Payments," Journal of Political Economy, University of Chicago Press, vol. 125(1), pages 1-39.
    7. Gautam Gowrisankaran & Robert J. Town, 1997. "Dynamic Equilibrium in the Hospital Industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(1), pages 45-74, March.
    8. Herring, Bradley, 2005. "The effect of the availability of charity care to the uninsured on the demand for private health insurance," Journal of Health Economics, Elsevier, vol. 24(2), pages 225-252, March.
    9. Kolstad, Jonathan T. & Kowalski, Amanda E., 2012. "The impact of health care reform on hospital and preventive care: Evidence from Massachusetts," Journal of Public Economics, Elsevier, vol. 96(11), pages 909-929.
    10. Congressional Budget Office, 2013. "Updated Budget Projections: Fiscal Years 2013 to 2023," Reports 44172, Congressional Budget Office.
    11. Amy Finkelstein & Nathaniel Hendren & Erzo F.P. Luttmer, 2015. "The Value of Medicaid: Interpreting Results from the Oregon Health Insurance Experiment," NBER Working Papers 21308, National Bureau of Economic Research, Inc.
    12. Mark Duggan, 2002. "Hospital Market Structure and the Behavior of Not-For-Profit Hospitals," RAND Journal of Economics, The RAND Corporation, vol. 33(3), pages 433-446, Autumn.
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    Citations

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    Cited by:

    1. Schumacher, Heiner, 2016. "Insurance, self-control, and contract flexibility," European Economic Review, Elsevier, vol. 83(C), pages 220-232.
    2. repec:aea:aejapp:v:11:y:2019:i:2:p:1-36 is not listed on IDEAS
    3. Pietro Tebaldi & Alexander Torgovitsky & Hanbin Yang, 2019. "Nonparametric Estimates of Demand in the California Health Insurance Exchange," NBER Working Papers 25827, National Bureau of Economic Research, Inc.
    4. Maclean, J. Catherine & Tello-Trillo, Sebastian & Webber, Douglas A., 2019. "Losing Insurance and Behavioral Health Hospitalizations: Evidence from a Large-Scale Medicaid Disenrollment," IZA Discussion Papers 12463, Institute of Labor Economics (IZA).
    5. Amy Finkelstein & Nathaniel Hendren & Mark Shepard, 2017. "Subsidizing Health Insurance for Low-Income Adults: Evidence from Massachusetts," NBER Working Papers 23668, National Bureau of Economic Research, Inc.
    6. Sonia Jaffe & Mark Shepard, 2017. "Price-Linked Subsidies and Health Insurance Markups," Working Papers 2017-084, Human Capital and Economic Opportunity Working Group.
    7. repec:pal:easeco:v:45:y:2019:i:1:d:10.1057_s41302-018-0124-7 is not listed on IDEAS
    8. Sonia P. Jaffe & Mark Shepard, 2017. "Price-Linked Subsidies and Imperfect Competition in Health Insurance," NBER Working Papers 23104, National Bureau of Economic Research, Inc.
    9. repec:eee:jhecon:v:63:y:2019:i:c:p:64-80 is not listed on IDEAS
    10. Korenman, Sanders D. & Remler, Dahlia K., 2016. "Including health insurance in poverty measurement: The impact of Massachusetts health reform on poverty," Journal of Health Economics, Elsevier, vol. 50(C), pages 27-35.
    11. Luojia Hu & Robert Kaestner & Bhashkar Mazumder & Sarah Miller & Ashley Wong, 2016. "The Effect of the Patient Protection and Affordable Care Act Medicaid Expansions on Financial Wellbeing," NBER Working Papers 22170, National Bureau of Economic Research, Inc.
    12. Owen (O.A.) O'Donnell, 2019. "Financial Protection Against Medical Expense," Tinbergen Institute Discussion Papers 19-010/V, Tinbergen Institute.

    More about this item

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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