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Charity care crunch? Rise in uninsured, underinsured offers hospitals tough choices

Buildings from Essentia Health St. Mary's Medical Center (left) and St. Luke's hospital dominate this view of Duluth's hillside as seen from the air on March 1, 2017. (Clint Austin / caustin@duluthnews.com)

Starting next year, the federal government won't penalize people who don't carry health insurance, so fewer people are expected to be insured. Hospitals, required to provide emergency care regardless of the patient's ability to pay, are expecting more red ink as a result.

This might hurt a little.

"The insured patients have to make it up. Which means your insurance is going up," said St. Luke's CEO John Strange.

In the complex machinery of health care economics, many factors affect the cost of care and how it's delivered. And though providing charity care is both required of hospitals and a source of pride for them, too much will put a strain on the bottom line.

"Because we're a nonprofit, we use that bottom line for new programs, new equipment, upgrading facilities and services and so it does ultimately have an impact on the programs we can bring to the community," Strange said.

Free and discounted health care itself could come under the knife.

"There is the potential to reduce services offered for free," said Stefan Gildemeister, health economics program director at the Minnesota Department of Health. "There are no (legal) requirements beyond stabilizing patients."

St. Luke's and Essentia Health both told the News Tribune they have no plans to further limit the care they provide to people who can't pay. If that remains the case while the number of uninsured people rises in the coming years, it will put pressure on the health systems to find other sources of money and/or make cuts.

"The way we think of it, when one source of revenue goes down you seek it out elsewhere — but that doesn't always seem to play out in reality," Gildemeister said.

Uninsured, underinsured

For a brief moment, the lines on the chart were at last heading in the right direction — down. Minnesota hospitals were giving away less free care and chasing after less bad debt following years of watching these costs rise.

According to the Minnesota Department of Health, uncompensated care peaked in 2013 at $321 million and started falling, bottoming out at $268 million in 2015. Thanks in part to the Affordable Care Act, more people were insured and paying their bills.

Now, since federal tax reform passed earlier this year essentially eliminates the mandate to carry insurance, fewer people will be insured and paying their bills in full, experts anticipate.

The Minnesota Hospital Association, which reported a rise in uncompensated care in 2016, warned earlier this year that because of the insurance requirement disappearing, "hospitals and health systems anticipate further increases in both charity care and bad debt in the future."

It's not just the uninsured causing the rise in uncovered costs. More people are carrying health insurance with massive deductibles, and hospitals essentially are treating them as uninsured.

"Now charity care policies cover people who have insurance and higher incomes but higher deductibles," said Lawrence Massa, president of the Minnesota Hospital Association. "We've redefined a bit on charity care."

In the face of the projected increased demand for charity care, hospitals may need to redefine their policies again.

"It certainly puts pressure on needing to make up that lost revenue somewhere," Massa said. "It's built on a system that shifts costs."

Local effects

For the past several years, Essentia Health has kept systemwide charity care costs right around $13 million, according to annual reports. Though this consistency seems to indicate a target for these costs, the organization says it does not budget a set amount for free and reduced-cost care.

"We have a financial assistance policy which is not in any way restricted," said Kevin Boren, market finance leader for Essentia Health East. "So all people who apply for financial assistance are evaluated based on standard criteria."

Hospitals are legally required to treat emergency care regardless of ability to pay. The law describes an emergency medical condition as "manifesting itself by acute symptoms of sufficient severity (including severe pain) such that the absence of immediate medical attention could reasonably be expected to result in placing the individual's health (or the health of an unborn child) in serious jeopardy, serious impairment to bodily functions, or serious dysfunction of bodily organs."

Everything else is up to the provider's discretion.

"Rarely, elective procedures may be postponed until a payment method can be agreed to by the patient," Boren said. "This usually occurs if the patient refuses to fill out any aid application or payment plan."

Will more uninsured patients mean less flexibility for non-emergency care?

"As the individual mandate gets repealed in the future, we're just watching that situation and it's really, quite frankly, uncertain how it will roll out, what the implications will be," said Mike Mahoney, public policy leader for Essentia.

At St. Luke's, data shows charity care has drifted below $3 million over the past few years. But in 2017 the CEO said charity care and bad debt "jumped dramatically" due to big deductibles leaving patients underinsured.

"They just don't have the wherewithal to pay," Strange said.

Despite the projected increase in uninsured and underinsured, Strange maintains there are no plans to change policies for treating those who can't pay "for the foreseeable future."

More changes coming?

If anything, Strange sees bigger clouds on the horizon.

"If you look at the majority of the coverage that was gained in Minnesota, most of it was Medicaid," Strange said. "Those patients will be covered. The number of people that actually got insurance I don't think grew as fast. It may have an impact, but it may not have that big of an impact."

Indeed, only about 6 percent of Minnesotans — and 5 percent of Duluthians — are uninsured, though the number is already on the rise. Census data show Duluthians are more likely (35 percent) to depend on public health benefits than the state at large (30 percent), in part due to the city's poverty rate being double that of the state average and the population skewing slightly older.

The problem is, Medicare and Medicaid don't pay their own hospital bills in full.

"We get told what we're going to get paid. And what we're paid has no relationship to what it actually costs," Strange said.

Minnesota hospitals had $2.4 billion in costs that weren't covered by Medicaid and Medicare in 2016, according to the Minnesota Hospital Association. For Essentia's regional operations, the shortfall accounted for about 10 percent of expenses that year.

Though the president's budget called for cuts to health care entitlements, Congress recently passed a spending bill that largely leaves those programs alone. Mahoney at Essentia had warned such cuts could have resulted in higher costs and fewer services.

"If all those recommendations were to go into effect it would not only negatively impact our financial stability, but it would have a significant impact on access to care in rural communities," Mahoney said. "It would make us look at services lines specifically and determine what exactly can we maintain in the interest of the patients we serve."

Regardless of any potential changes, in the long run, everyone will end up paying more for health care simply as a matter of course, says Gildemeister, the state health economist.

"We just see year over year the price for the same baskets of services does increase, and it tends to rise faster than the economy and wages," he said. "That underlying trend of the price of health care and the cost of health care services — nothing has changed with that."