Insured Patients Face Unfair Exclusion from Hospital Charity Care

The Dollar For research team spends a lot of time reading charity care policies of hospitals across the country. They have found 129 policies that consider any insured patient automatically ineligible for charity care. Many more require patients to be “underinsured,”  which is usually not defined in the policy. This is a problem because the data show that insured patients cannot afford their out-of-pocket amounts. In fact, most insured patients have medical debt (54%). Worse, most hospital bad debt (debt the hospital considered uncollectible) is held by patients who have insurance (58%). It would seem that not offering insured patients charity care is not good for patients or hospitals. On the front-end of the process patients who need charity care the most are automatically considered ineligible. On the back-end the hospital spends disproportionate resources on trying to collect uncollectible debt from these same “ineligible” patients. This not only hurts these patients’ financial situation but it also affects their health. Nearly two in five adults have reported delaying or skipping needed healthcare or prescription drugs because they cannot afford it. More than half of those patients reported that their health issues worsened as a result.

Federal law has always meant for nonprofit hospitals to offer charity care to insured patients

The federal law that obligates nonprofit hospitals to offer charity care is 26 USC 501(r). This set of regulations is often referred to as “501(r).” It obligates a hospital to have a charity care policy that applies to “all emergency and other medically necessary care.” It’s difficult to read the words “except for when the patient has insurance” into that broad mandate. If the patient otherwise meets the household income requirements, all of their emergency or other medically necessary care should be discounted by charity care. Senator Chuck Grassley, who was instrumental in getting a charity care requirement written into the Affordable Care Act, actually wrote to the Senate Finance and Judiciary Committees in 2020 reporting 501(r) violations. He described the issue as hospital charity care policies “that ‘all but ignore[d] patients with any form of health insurance, no matter their out-of-pocket-costs.’” Hospitals with charity care policies that exclude insured patients are either flirting with or have outright crossed the line on what is permitted by federal law, and Congress has started to notice. 

By not offering charity care to insured patients hospitals may be leaving money on the table

To be clear, hospitals are not solely to blame. In a perfect world insured patients would not need charity care because they have insurance. Paying for one’s care when it’s needed is insurance’s one job. However, insurance companies have been increasingly shoving more responsibility onto patients for out of pocket costs. There should definitely be broader legislative and regulatory reforms that prevent an insured patient from incurring medical debt. In the meantime, charity care is an underutilized tool that can get these patients out of harm’s way. It is also possible that some hospitals are leaving money on the table by not giving insured patients charity care. The federal government partially reimburses hospitals for the charity care it grants through Disproportionate Share Hospital payments (DSH payments). DSH payments give hospitals disproportionately more for charity care granted to insured payments for unpaid deductibles and coinsurance amounts, because these amounts are not required to be multiplied by the hospital’s cost-to-charge ratio.

Key Takeaways

1. Just because a patient has insurance does not mean they do not also need charity care. 54% of insured patients have medical debt.
2. Hospitals are spending a lot of money to try and collect coinsurance and deductibles that are fundamentally uncollectible. 58% of hospital bad debt is held by insured patients. 
3. 501(r) requires charity care policies to apply to insured patients.
4. If hospitals give charity care to an insured patient for deductibles and coinsurance they can maximize their DSH payment for that amount.

Sources

1. Lopes, L., Kearney, A., Montero, A., Hamel, L., & Brodie, M. (2022, June 16). Health Care Debt In The U.S.: The Broad Consequences Of Medical And Dental Bills. KFF. Retrieved September 16, 2024, from https://www.kff.org/health-costs/report/kff-health-care-debt-survey/
2.  Hall, C., Ruiz, K., & Szaflarski, M. (2022, August). Hospital collection rates for self-pay patient accounts. Crowe LLP. Retrieved September 16, 2024, from https://www.crowe.com/-/media/crowe/llp/widen-media-files-folder/h/hospital-collection-rates-for-self-pay-patient-accounts-report-chc2305-001a.pdf
3. Collins, S. R., Roy, S., & Masitha, R. (2023, October 26). Healthcare Affordability in America. Commonwealth Fund. Retrieved September 16, 2024, from https://www.commonwealthfund.org/publications/surveys/2023/oct/paying-for-it-costs-debt-americans-sicker-poorer-2023-affordability-survey
4.  (Collins et al., 2023)
5.  26 CFR 501(r)(4)(b)(1)(i)
6.  Grassley, C. E. (2020, 12 2). UVA Medical Center and Methodist Le Bonheur Healthcare Hospital. US Senate. Retrieved 9 16, 2024, from https://www.finance.senate.gov/imo/media/doc/2020-12-02%20CEG%20to%20Colleagues%20letter%20only%20(Non-profit%20Hospitals).pdf
7.  Worksheet S-10 – Hospital Uncompensated and Indigent Care Data Following 2018 IPPS Final Rule Questions and Answers. (2017, September 29). CMS. Retrieved September 16, 2024, from https://www.cms.gov/medicare/medicare-fee-for-service-payment/acuteinpatientpps/downloads/worksheet-s-10-ucc-qandas.pdf