Declines in Uncompensated Care Costs for The Uninsured under the ACA and Implications of Recent Growth in the Uninsured Rate

Technical Appendix

In this appendix, we provide a more detailed description of our study data, methods, and limitations, including our approach for estimating uncompensated care costs.

Data

We use 2011-2017 data from the Medical Expenditure Panel Survey Household Component (MEPS-HC), a nationally representative survey of the civilian noninstitutionalized population conducted by the Agency for Healthcare Research and Quality.  The MEPS-HC collects detailed information on monthly health insurance coverage and health care utilization and spending. Expenditure data reported by MEPS-HC participants are validated using information collected through the MEPS Medical Provider Component (MPC), which follows up with a sample of respondents’ health care providers and pharmacies to collect information on charges and payments.  MPC data are used to edit and impute spending in the MEPS-HC.

Definition of Uncompensated Care Costs

We identify uninsured patients’ spending that reflects uncompensated care costs, which include payments made on behalf of an uninsured person from sources other than comprehensive health insurance plans and out-of-pocket payments.  Our definition of uncompensated care costs includes two components: 1) alternative sources of payment for care and 2) implicitly subsidized care.  Below we describe how we identify spending while uninsured; define uninsured spending from alternative sources; calculate implicitly subsidized care; and apply adjustments to the data to reconcile differences in estimated expenditures between the MEPS-HC with the National Health Expenditure Accounts (NHEA) and to account for inflation and population growth.

Identifying spending while uninsured

We consider spending for medical events (e.g., provider visits, prescription fills) to be uninsured if the person was not insured in the month when the event occurred and the spending was not covered by private insurance (including TRICARE), Medicare, or Medicaid/CHIP.  We merge monthly insurance status data from the MEPS-HC full-year consolidated file to each medical event file to determine whether individuals were uninsured when the event occurred.  We calculate spending while uninsured for the following medical events:1

  • Prescription drugs
  • Hospital inpatient stays
  • Hospital emergency room visits
  • Hospital outpatient visits
  • Office-based physician visits, including visits to physician-supervised health care professionals such as nurse practitioners and physician assistants
  • Office-based non-physician provider visits
  • Home health visits
  • Dental visits
  • Other medical expenses, which includes spending on durable medical equipment, disposable medical supplies, ambulance services, and vision care

For most types of medical events, we use the event month to determine coverage status at the time of care.  For hospital inpatient stays, we use coverage status based on the month of the beginning of the stay.  For prescription medicines, we link the prescription fills to other medical events (if applicable) and base coverage status on the month of those events.  For prescribed medicines that cannot be linked to other events and for “other” medical expenses in which event month is unavailable, we randomly assign the drug fill or expense to a month within the survey round and year in which the fill or expense occurred.  This approach allows us to assess total uninsured and insured spending by service and payer for people who were uninsured for part or all of the year.

Defining uninsured spending from alternative sources

Alternative sources of payment include the following payments made for care while uninsured:

  • VA or CHAMPVA
  • Other federal sources, including Indian Health Service, military treatment facilities, and other care provided by federal government
  • Other state and local sources, including community clinics, state and local health departments, and state programs other than Medicaid
  • Workers compensation
  • Other private sources, including private insurance payments reported for people without comprehensive private health insurance coverage during the year
  • Other unclassified sources, including auto, homeowners, and liability insurance and other unknown sources

Private insurance coverage in the MEPS-HC is defined as having a major medical plan covering hospital and physician services.  Some payments classified as “other private” may be from single-service plans.

Our definition of alternative sources excludes “other public” spending reported in the MEPS, which represents Medicaid payments for people not reported to be enrolled in Medicaid during the year.  Some of these reported payments may result from confusion between Medicaid and other state and local programs or may be for people not enrolled in Medicaid but presumed eligible by a provider who ultimately received payments from Medicaid.

We assume that payment from alternative sources are negotiated between payers and providers such that any difference between charges and payments represent a contractual discount accepted by the provider.  Therefore, there is no implicit subsidy for care covered by these sources.

Calculating implicitly subsidized care

As noted in the brief, our estimates of implicitly subsidized care are based on the expected private payments for care if an uninsured person was privately insured minus their actual payments made out-of-pocket and from other private or unclassified sources.

We first sum the total charges and payments for each service, excluding prescription medicines, among full-year privately insured nonelderly people with no reported public coverage or public spending during the year.  We then take the ratio of average total payments to average total charges for each service.  This payment-to-charge ratio represents the average share of charges for each service that we would expect to be covered by private insurance.  We do not calculate a payment-to-charge ratio or implicitly subsidized care for prescription drugs because the MEPS-HC does not provide data on charges.

Next, we identify uninsured spending for each service that is eligible for implicitly subsidized care among people who were uninsured for part or all of the year.  Eligible charges and payments are based on whether the service was only paid for out-of-pocket and/or covered by other private or unidentified sources.  Charges and payments while uninsured are considered ineligible if fully or partially covered by Medicare, Medicaid, private insurance, other public sources, or other indirect sources.

For each service, we multiply the total eligible charges while uninsured by the privately insured payment-to-charge ratio to calculate the expected payment for the service if the uninsured person was privately insured.  We then subtract actual out-of-pocket or private payments from expected privately insured payments for each service; this difference represents implicitly subsidized care.

Applying NHEA, inflation, and population adjustments

The MEPS-HC captures less aggregate medical spending than the National Health Expenditure Accounts (NHEA) data, even after accounting for difference in populations and medical expenditure categories across sources. We adjust expenditures by payer and service type to more closely reflect NHEA aggregate expenditure totals based on adjustment factors developed by Bernard et al. for reconciling MEPS and NHEA expenditures in 2012. Adjustment factors are available for the following payers: private insurance, Medicare, Medicaid, defense, VA, and workers’ compensation; no adjustment is made for other public payers and other sources.  We also do not adjust out-of-pocket expenditures, which is not measured directly in the NHEA but is instead a residual category of expenditures.  We instead assume out-of-pocket expenditures reported in the MEPS-HC are more accurate.  Consistent with this approach, NHEA adjustments for implicitly subsidized care are calculated only for the share of eligible uninsured spending paid by other private insurance because there is no adjustment for out-of-pocket spending or spending from other unclassified sources.  For each payer, NHEA adjustments are made for the following service categories: hospital, physician, non-physician providers, dental care, home health care, prescription drugs, and other medical equipment.

We inflate all spending to constant 2017 dollars for each service type based on appropriate price indices.  We use the Personal Health Care Expenditure components of the NHEA for hospital care, physician/clinical services, other professional services, dental care, home health care, and durable medical equipment.  We adjust prescription drug spending for inflation using the Consumer Price Index for prescription drugs.  After these adjustments are made, we sum implicitly subsidized care and indirect uninsured spending across payment sources and service types to calculate uncompensated care costs overall, by payer, and by service type.  We apply the same NHEA and inflation adjustments to insured spending.  Finally, we adjust all estimates to account for population growth based on Census Bureau population projections .

Analysis and Limitations

We compare average annual per capita and total uncompensated care costs for nonelderly people ages 0 to 64 between 2011-2013 and 2015-2017, the periods just before and just after implementation of the ACA’s major coverage provisions in 2014.  We pool three years of data in each period to increase the precision of our estimates.  All analyses use survey weights and survey design variables to calculate standard errors that reflect the complex design of the MEPS.

Though approximately one-third of self-reported expenditures in the MEPS-HC are validated based on the MPC, there is still potential for measurement error in estimated expenditures and the MPC does not collect spending data from dental providers, non-physician providers, or medical equipment.  Studies have also found measurement error in self-reported health insurance coverage in the MEPS, which may affect our estimates of spending among the uninsured and, consequently, uncompensated care costs.

Issue Brief

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