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Uncompensated Care and the Collapse of Hospital Payment Regulation: An Illustration of the Tinbergen Rule

Listed author(s):
  • Jeffrey Clemens
  • Benedic Ippolito

Hospital payment regulation has historically been introduced to meet multiple policy objectives. The primary objective of "all-payer" rate setting regimes was to control costs through consistent, centrally regulated payments. These regimes were often linked, however, to an ancillary goal of financing care for the uninsured. We show that this secondary objective made states' all-payer regimes economically and legally unstable. Their economic instability reflected a feedback loop from surcharge rates to insurance coverage rates and back to the quantities of uncompensated care in need of being financed. The erosion of all-payer regimes' surcharge bases was particularly pronounced when health maintenance organizations were exempted from surcharge collections, creating a regulatory arbitrage opportunity. The economic and legal instability we highlight could largely have been avoided by financing the cost of uncompensated care provision through taxation of income or other standard revenue bases. These developments thus illustrate the wisdom of the Tinbergen Rule, which recommends that independent policy objectives be met with independent policy instruments.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 23758.

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Date of creation: Aug 2017
Handle: RePEc:nbr:nberwo:23758
Note: HC HE LE PE
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  1. Thomas Buchmueller & John Dinardo, 2002. "Did Community Rating Induce an Adverse Selection Death Spiral? Evidence from New York, Pennsylvania, and Connecticut," American Economic Review, American Economic Association, vol. 92(1), pages 280-294, March.
  2. Jeffrey Clemens, 2015. "Regulatory Redistribution in the Market for Health Insurance," American Economic Journal: Applied Economics, American Economic Association, vol. 7(2), pages 109-134, April.
  3. Gaskin, Darrell J., 1997. "Altruism or moral hazard: The impact of hospital uncompensated care pools," Journal of Health Economics, Elsevier, vol. 16(4), pages 397-416, August.
  4. Aaron S. Yelowitz, 1995. "The Medicaid Notch, Labor Supply, and Welfare Participation: Evidence from Eligibility Expansions," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 909-939.
  5. repec:aea:aejpol:v:9:y:2017:i:2:p:28-56 is not listed on IDEAS
  6. Emmanuel Saez, 2001. "Using Elasticities to Derive Optimal Income Tax Rates," Review of Economic Studies, Oxford University Press, vol. 68(1), pages 205-229.
  7. Jeffrey Clemens & Joshua D. Gottlieb & Tímea Laura Molnár, 2015. "The Anatomy of Physician Payments: Contracting Subject to Complexity," NBER Working Papers 21642, National Bureau of Economic Research, Inc.
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