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Uncompensated Care for the Uninsured in 2013: A Detailed Examination

Sources of Funding for Uncompensated Care

Relying on secondary data sources, we estimate that uncompensated care for the uninsured to be $74.9 billion in 2013 (Table 3).  Providers, however, often do not bear the full cost of their uncompensated care. Through various, complicated ways, funding is available from a wide variety of sources (e.g., the federal government as well as private entities) to help providers defray the costs associated with uncompensated care. Sometimes this funding is directly linked to an individual patient’s care, but often it is paid out in a lump sum such as Medicaid DSH payments or state or local grants dedicated to fund community indigent health programs or services.

Uncompensated care funding sources are diverse, ranging from the Medicaid program, to the Veterans Administration, to community health centers. In this section, we estimate the level of funds provided by major funders of uncompensated care in 2013, including the federal government, states and local governments, and private entities. To do this, we rely on several data sources, including program and budget data we used in the previous sections.

Table 4 summarizes our results on sources of uncompensated care funding in 2013.  We estimate that across the various funding streams, $53.3 billion was paid in 2013 to help providers offset uncompensated care costs.  As shown, the federal government is by far the largest funder of uncompensated care. In 2013, we estimate across a range of programs, the federal government provides $32.8 billion (61.5 percent) to help providers cover costs associated with caring for the uninsured. State and localities are the second largest, providing another $19.8 billion; the private sector is estimated to contribute $0.7 billion.

In terms of programs, Medicaid is the single largest funder of uncompensated care. In 2013, we estimate Medicaid contributed $13.5 billion to help pay for care for the uninsured, accounting for 25.3 percent of funding.  At $9.8 billion, state and local appropriations for indigent care programs were the second largest funder, followed by the Veterans Administration ($8.1 billion) and Medicare ($8.0 billion). Close behind was state and local public assistance funding at $7.3 billion. At a much lower level, community health centers funding totaled $3 billion, followed by the Indian Health Service ($2.1 billion), Ryan White Care Act ($1.5 billion) and Maternal and Child Health Title V Block Grant ($0.1 billion).

We report aggregate Medicaid, Medicare and state and local government payments made to providers, mostly hospitals. At the individual provider level, these payments may overcompensate some providers for their uncompensated care but undercompensate others.  To the extent that funding for uncompensated care does not match a given provider’s rendering of that care, the funding reported in Table 4 may not defray providers’ uncompensated care as much as indicated.

Table 4: Uncompensated Care Funding by Program Type and Funding Source, Projected 2013 ($billions)
Funding Source
Program Federal State/Local Private Total
Total $32.8
Medicaid program (DSH and UPL payments) $11.8 $1.6 $13.5
Medicare program (DSH and IME payments) $8.0 $8.0
State/local tax appropriations for indigent programs $9.8 $9.8
State/local public assistance $7.3 $7.3
Veterans Health Administration $8.1 $8.1
Indian Health Service $2.1 $2.1
Community Health Centers $1.9 $0.8 $0.3 $3.0
Ryan White CARE Act $0.9 $0.2 $0.4 $1.5
MCH Title V Block Grant * $0.1 * $0.1
Note: * We estimated that federal government provided $20.0 million and private sources $22.4 million in funding for MCH Title V Block Grant, but because of rounding these amounts are not shown in table.Source: Urban Institute estimates derived from secondary data.

Data Sources and Assumptions Used for Sources of Funding Analysis

In this section we describe the data sources and the assumptions used to generate the estimates presented in Table 4 by each of the funding sources.  As part of this discussion, where appropriate, we break out what share of each funding source is directed to hospitals. This information is used in the following section that looks at the extent to which uncompensated care funding covers providers’ costs.

Table 5. Estimates of Medicaid and Medicare Supplemental Payments Available to Fund Uncompensated Care, projected 2013($billions)
Provider      Potentially Available Amount ($Billions)
  Federal   State/Local   Total
DSH Payments 9.6 1.5 11.1
UPL Payments 14.3 1.7 16.1
Less Medicaid Underpayments -12.1   -1.6   -13.7
Total Medicaid 11.8 1.6 13.5
DSH Payments $5.7 0.0 5.7
IME Payments 2.3 0.0 2.3
Total Medicare 8.0 0.0 8.0
Source: Urban Institute calculations.
The Medicaid Program

Medicaid has two major payments that help fund the cost of hospital uncompensated care: DSH payments and upper payment limit (UPL) payments. DSH payments, for which there is a capped federal allotment, are a required Medicaid payment targeted to hospitals that treat large numbers of low-income patients.1  UPL payments are optional Medicaid payments that states can make under the Medicare upper payment limit to a range of providers including hospitals. Since state Medicaid reimbursement levels are often less than those of Medicare’s, states can make additional Medicaid payments that are above their regular Medicaid rates, yet within the Medicare UPL.  Both DSH and UPL payments can help defray hospitals’ uncompensated care costs associated with caring for the uninsured as well as help make up for the so-called “Medicaid underpayment” or “Medicaid shortfall” due to Medicaid hospital rates often being less than costs of providing the service.

DSH Payments

To estimate funds available to help pay for hospitals uncompensated care through Medicaid DSH payments we used a several step process. The preliminary 2013 federal Medicaid DSH allotment is $11.5 billion.2 Some share of the allotment (roughly $1.9 billion) is allocated to mental hospitals, so the federal DSH allotment available to acute care hospitals is estimated at $9.6 billion.  Assuming that states fully spent out their DSH allotments (which is frequently the case) and applying an average federal match of 59.6 percent in 2013, total federal and state DSH payments to inpatient acute care hospitals in 2013 are estimated to be $16.0 billion, of which $9.6 billion is federal and $6.4 billion is state funds (before adjustments below).3

The state share of DSH payments, however, is often financed with provider taxes (PTs), inter-governmental transfers (IGTs), certified public expenditures (CPEs) and the like. As a result, states’ shares of DSH payments often do not represent new funds to hospitals.4 Based on a 2009 survey of state financing of DSH payments, an estimated 77.2 percent of states’ share of DSH payments to acute care hospitals was financed with revenues gained from PTs, IGTs or CPEs.5  For our study, we assumed that the balance, 22.8 percent, was financed with state general funds (SGFs). We further assumed that the states’ share raised by PTs and the like do not represent “new” funds to the hospitals but SGFs do. Last, we assumed that the share of SGF used to finance inpatient DSH payments has remained constant between 2009 and 2013.  Assuming that only 22.8 percent of the state share of DSH payments represent real new dollars to hospitals, we estimate that $1.5 billion ($6.4 billion x 22.8%) in state funds are available to help fund hospitals’ uncompensated care through Medicaid DSH programs. Adding our estimate of the state DSH ($1.5 billion)  to our estimate of the full federal DSH allotment for acute care hospitals ($9.6 billion), we estimate a total of $11.1 billion in Medicaid DSH payments were available to acute care hospitals to help cover their uncompensated care costs in 2013 (Table 5).

UPL Payments

According to the CMS-64, in 2011, 34 states made an estimated $17.7 billion (federal and state) in inpatient hospital UPL payments, and 21 states made $4.4 billion (federal and state) in outpatient hospital UPL payments, for combined total UPL payments of $22.1 billion.6 Assuming an average (not-ARRA enhanced) federal match of 59.9 percent in 2011,7 the federal share of UPL payments is $13.2 billion; the state share $8.9 billion in 2011.

Akin to DSH payments, states often use IGT, CPEs and the like to fund UPL payments.  A 2009 survey found that 82.0 percent of state’s hospital UPL payments was financed with revenues from provider taxes, IGTs or CPEs.  We assume that the balance, 18.0 percent, was financed with SGFs. Consistent with our assumptions for DSH payments, we assumed that the state share raised by PTs, IGTs and CPEs for UPL payments do not represent “new” funds to the hospitals but SGFs do.  We also assumed that the share of SGF used to finance inpatient UPL payments has remained constant between 2009 and 2013, and that the same financing ratio applies to both inpatient and outpatient UPL payments.

Applying the 18.0 percent SGF to the estimated state share of UPL payments ($8.9 billion) in 2011, we estimate $1.6 billion of states’ share of UPL were available to fund hospitals’ uncompensated care in 2011.  We then used the National Health Expenditures hospital data to inflate the supplemental provider payments from 2013, estimating that UPL payments potentially available to fund hospitals’ uncompensated care for uninsured totaled $16.1 billion, of which $14.3 billion was federal funds and $1.7 billion was state funds (Table 5).

Adjusting for Medicaid Underpayment

In a final step to estimate the level of Medicaid funding potentially available to hospitals for uncompensated care, we subtract a portion of Medicaid DSH and UPL payments as an offset that implicitly compensates some hospitals for low Medicaid payment rates, sometimes referred to as the “Medicaid underpayment.” The AHA defines the Medicaid underpayment as the difference between hospitals’ incurred costs of providing care to Medicaid patients and the reimbursement hospitals receive from state Medicaid programs for that care. The AHA  estimated Medicaid underpayments in 2012 at $13.7 billion.8 Distributing this between the federal and state shares, we estimate $12.1 billion in federal payments and $1.6 billion in state payments. We then subtract these underpayments from our estimates of DSH and UPL payments.  After adjusting for underpayments,  estimate that total Medicaid payments available to cover hospital uncompensated care were $13.5 billion in 2013. 9

The Medicare Program

Medicare provides support for uncompensated care through Medicare DSH payments and its indirect medical education (IME) program. All Medicare payments for uncompensated care are from federal funds.

Medicare DSH payments

Medicare’s DSH adjustment to payment rates, included in the Prospective Payment Systems (PPS) for hospital inpatient services, is an attempt to provide additional funding to hospitals that treat a large number of poor patients. Hospitals qualify for Medicare DSH payments if their ratio of low-income patients (called the disproportionate patient percentage or DPP) is above 15 percent. The DPP is calculated using the proportion of Medicare inpatient days accounted for by Medicare beneficiaries who are eligible for Supplemental Security Income and the proportion of all inpatient days by people covered by Medicaid.

Medicare DSH payments are justified by the assumption that hospitals that treat a large proportion of low-income patients have higher costs and thus need to be reimbursed at higher rates. In recent years, however, there has been some dispute over whether a hospital’s share of low-income patients is actually correlated with higher costs. Medicare Payment Advisory Commission (MedPac) studies have found that the DPP, the low-income patient share, is only loosely tied to higher Medicare costs per case.10 The distribution of DSH payments also calls into question whether they solely support indigent care, as their distribution across hospitals often does not align with where the concentration of uncompensated care is the highest.11 Consequently, we assume that only half of Medicare DSH payments actually support uncompensated care. Given the Congressional Budget Office’s 2013 forecast of $11.4 billion12 in Medicare DSH payments, we attribute $5.7 billion as potentially available to pay for hospitals’ uncompensated care for the uninsured (Table 5).

Medicare IME payments

An adjustment for IME, based on the hospital’s ratio of residents per bed, is also incorporated into Medicare hospital payments in an effort to recognize the higher patient costs incurred by hospitals with graduate medical programs. A major justification for this adjustment rests on the claim that teaching hospitals take on the responsibility of treating the uninsured, among other important social missions. Recent MedPac studies, however, also questioned the strength of this relationship. IME payments appear to support many functions in addition to supporting uncompensated care. For this reason, we attribute only one-third of total IME payments, $2.3 billion, to care for the uninsured.13  We combine the portion of Medicare’s DSH and IME program payments, which are potentially available to support uncompensated care, and calculate that $8.0 billion in federal dollars are available to support uncompensated care through the Medicare program in 2013 (Table 5).

State and Local Governments

Medical care for the uninsured is funded by payments from state and local governments in the form of tax appropriations and support to public assistance and indigent care programs for which data are published by the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS).14 Although there is no information to indicate exactly how these tax appropriations are used, they are largely directed to public hospitals to support a variety of functions.15  So while these funds are not specifically earmarked to support uncompensated care to the uninsured, the hospitals to which they are targeted suggest they are available for that purpose.

In 2011, CMS reported that the total state and local medical care spending was $20.9 billion, with $18.1 billion going to hospitals and $2.8 billion going towards supporting home health care and other personal services. We only include those funds going towards hospitals; we assume that the funds directed towards home health care and other personal services likely support long-term care services, which we excluded.  We assume that half of public payments to hospitals support uncompensated care, (with the remaining half going to other hospital functions), which produces an estimate of $9.1 billion in 2011. After inflating to 2013, our estimate of state and local appropriations dedicated to indigent health care programs is $9.8 billion (Table 4).

The CMS data also report that state and local government public assistance programs or indigent care programs spent $6.7 billion on medical care in 2011, with $2.1 billion going to hospitals; the balance ($4.6 billion) went to physicians and clinic services, prescription drugs, and other providers. After inflating to 2013 dollars, we estimate that these state and local public assistance programs support $7.3 billion in uncompensated care (Table 4).

Veterans Health Administration

The Veterans Health Administration (VHA) spent $45.5 billion on medical care for veterans in 2012 (Table 6).16 Using the President’s Budget for the Department of Affairs Medical programs, we calculated that $32.4 billion, 71 percent of total VHA medical care spending, funded direct acute hospital care, outpatient care, and related operating expenses.17 According to a study conducted on veteran’s health insurance coverage, 24 percent of VHA users lack health coverage.18  Applying the proportion of VHA users who are uninsured, 24 percent, to the estimate of acute hospital and outpatient care spending, $32.4 billion, we estimate that the VHA spent approximately $7.8 billion on care to the uninsured in 2012. Inflating this figure to the projected 2013 budget level produces an estimate of $8.1 billion in VHA spending on the uninsured in 2013, all of which is federal funds (Table 4).19 VHA is a federal program, so all these funds are attributed to federal sources.

Table 6. Veterans Health Administration (VHA) Expenditures on Care to the Uninsured, 2013 ($billions)
Total VHA medical expenditures, 2012 $45.5
Amount for direct acute medical care (71% of total)a $32.4
Percent of VHA Users with Only VHA Coverageb 24.0%
Estimated Direct Medical Care Expenditures on the Uninsured, year $7.8
Inflated to 2013 budget estimate (factor of 1.037)c $8.1
Source: U.S. Dept. of Veterans Affairs expenditures data:
a 71% derived from FY 2012 national VHA budget (in millions): acute hospital care services (7,210) + outpatient care services (24,126) + proportionate general operating expenses ($1,052) = total direct medical ($32,388)/total medical program budget ($45,521) = 71%. See
b Could not find a more recent estimate so we are using the estimate from Shen, Lee, Hendicks and Kazis. “Veteran’s Health Insurance and Demand for VA Care.”
c Inflation factor based on difference between 2012 estimated VA budget for medical services and 2013 estimate budget for these services. Department of Veteran’s Affairs FY 2013 Budget Estimate.
Indian Health Service

Approximately 2.1 million of the nation’s estimated 3.3 million American Indians and Alaskan natives receive health care from the Indian Health Service (IHS). The extensive Federal IHS delivery system is comprised of 28 hospitals, 61 health centers, and 33 health stations, with additional services purchased from private providers outside the IHS delivery system.20  The IHS is a significant source of care for those without another source of health coverage, as 32 percent of American Indians and Alaska Natives are uninsured.21

The IHS was budgeted to receive $3.1 billion in Federal appropriations for acute care services in 2013 (Table 7).22  We subtract third-party collections for acute care services from total expenditures on these services and calculate what share of this funding is devoted to care for the uninsured. With third-party payers paying for approximately one-third of acute care services, we estimate that the IHS will spend $2.1 billion in federal funds on the uninsured in 2013 (Table 4).23

Table 7. Indian Health Service Appropriations for Medical Care to the Uninsured ($billions), 2013
Acute Care Services, 2013 $3.1
Insurance Collections $1.0
Total Support for Care to Uninsured (AC funding – AC collection)a $2.1
Source: Department of Health and Human Services Indian Health Service FY 2013 Performance Budget Submission.
a Uses FY 2013 continuing resolution estimate from Department of Health and Human Services Indian Health Service FY 2014 Justification of Estimates for Appropriations Committees so no inflation necessary.
Community Health Centers

In 2011, the Community Health Centers (CHC) program delivered care to over 20 million patients, including 7 million uninsured, about 36 percent of total patients CHCs served.24 We calculate total CHC spending on medical and clinical care services by summing direct care costs and related facility/administrative costs and estimate a total of $12.3 billion in direct medical spending in 2011 (Table 8).25  We exclude costs associated with enabling services such as case management and outreach. To estimate CHC spending on the uninsured, we apply the proportion of charges attributable to uninsured patients, 27.2 percent, to the total costs for direct care ($12.3 billion) to estimate $3.3 billion spent on care for the uninsured. We also subtract out-of-pocket payments by the uninsured ($0.8 billion) to estimate that CHCs provided $2.5 billion in uncompensated care for the uninsured in 2011.26  Inflating this figure to the projected 2013 budget level produces an estimate of $3.0 billion in CHC spending on the uninsured.

Table 8. Estimated Cost of Uncompensated Care to the Uninsured at Community Health Centers, 2013 ($billions)
Medical and Clinical Service Costs, 2011a $12.3
Share of Charges * (Uninsured) 27.2%
Medical and Clinical Service Costs (Uninsured) $3.3
Self-Pay Collections (Uninsured) $0.8
Total-Uncompensated Care Costs (Uninsured) $2.5
Inflated to 2013 Budget Estimate (factor of 1.196)b $3.0
Source: Bureau of Primary Health Care, HRSA, Uniform Data System, National Rollup report (2011).
Notes:*Uninsured patients’ charges / all patients’ charges = $3.78 / $13.88 = 27.23%.
a Accrued cost for medical care and other clinical services. Does not include any facility or non-clinical support services.
b Inflation factor based on difference between 2011 actual Community Health Center budget and President’s 2013 budget for the program. FY 2013 HHS Budget in Brief.

To support their operations, CHCs receive financial support from the federal government, states and localities as well as private funds. To break down the total amount spent by the CHC on the uninsured into that funded by the federal government, state/local, and private sources, we assume that the proportion in which they support uncompensated care is the same as the proportion in which they contribute to CHCs’ grant revenues. By applying these ratios to the total CHC uncompensated care costs, we calculate that federal spending, which is responsible for 63.0 percent of CHC grant revenue, accounts for $1.9 billion of CHCs’ uncompensated care. State/local spending, which is responsible for 27.5 percent of CHC grant revenue, pays for $830.5 million, and private spending, 9.4 percent of CHC grant revenue, pays for $283.9 million in 2013 (Table 4).27

Ryan White CARE Act

The Ryan White Comprehensive AIDS Resources Emergency Act (CARE) provides HIV-related services to over half a million people each year who are low-income, uninsured, or underinsured persons living with HIV and AIDS. CARE funds are directed to supporting primary medical care, including outpatient and inpatient services, as well as providing medications and support services.28 The majorityof direct medical care delivered via the CARE Act is funded through Part A (emergency assistance to the metropolitan areas most affected by the HIV/AIDS epidemic) and Part B, including the AIDS Drugs Assistance Program (ADAP).29 We only include the funds directed through these two parts of the program in our estimate of uncompensated care to the uninsured.

To calculate the share of CARE spending that is attributable to care for the uninsured (Table 9), we first calculate the share of funds spent on direct medical care in each of three categories: Part A spending (83 percent), Part B non-ADAP spending (77 percent), and Part B ADAP spending (100 percent).30 We then multiply the total medical care spending in each category by the share of charges attributable to the uninsured based on the uninsured rate among that part of the program’s users. Sixty percent of ADAP users are uninsured,31 and 33 percent of all CARE Act recipients are uninsured.32 Applying these proportions of the uninsured patients to their respective total costs attributable to direct medical care, we estimate $1.4 billion was spent on the uninsured in 2012. After inflating this figure to anticipated 2013 budget levels, we estimate that the CARE Act Program spent $1.5 billion in spending on the uninsured.33

To calculate the distribution of CARE Act program’s total spending among federal, state/local, and private sources we add the federal share of ADAP spending (50.2 percent) to Part A and Part B non-ADAP spending, both of which are entirely federally funded. This produces an estimated $904.8 million in federal funding. State and local governments contribute 16.5 percent of ADAP funding, resulting in an estimated $197 million in spending on the uninsured. Private sources provided $398 million (Table 4).34

Table 9. Ryan White CARE Act Spending on Medical Care to the Uninsured, 2013 ($billions)
Part A  
Federal Grants to Eligible Metropolitan Areas $0.7
Amount for Direct Medical Care 83.2%
Percent of Part A Patients Uninsuredc 33%
Part A Medical Care Spending on Uninsured $0.2
Inflated to 2013 budget estimate (factor of 1)d $0.2
Part B (Non-ADAP)  
Federal Grants (excluding ADAP) $0.4
Estimated Share for Direct Medical Careb 76.7%
Percent of CARE Act Patients Uninsuredc 33%
Part B Spending on Uninsured $0.1
Inflated to 2013 budget estimate (factor of 1.033)d $0.1
Part B AIDS Drug Assistance Program (ADAP)  
Total ADAP Budget, Federal and State Sourcesa $1.9
Amount for Direct Care 100%
Percent of ADAP Patients Uninsured 60%
ADAP Spending on Uninsured $1.1
Inflated to 2013 budget estimate (factor of 1.072)d $1.2
Total Ryan White Care to Uninsured, 2013 $1.5
Source: The Ryan White HIV/AIDS Program Progress Report 2012. Ahead of the  Curve. U.S. Department of Health and Human Services. November 2012.; Kaiser State Health Facts Online, Insurance Status of AIDS Drug Assistance Program (ADAP) Clients, 2011; HRSA. Part A Allocations Report for Total Part A Grantees FY 2012 Allocation Report for All Grantees
a The ADAP budget is spending almost entirely on medications. Some states also use ADAP funds to purchase/maintain health insurance coverage. This figure does not include nationwide ADAP spending on insurance.
b Excludes support services, outreach and education, case management, and early intervention. Includes a proportionate amount of administration and planning monies.
c CRS Report for Congress reports that in 2011, 33% of the patients served by the Ryan White program are uninsured.
d Inflation factor based on difference between 2011 actual Ryan White HIV/AIDS Activities budget and President’s 2013 budget for the program. FY 2013 HHS Budget in Brief.
Maternal and Child Health Bureau

The Title V Maternal and Child Health (MCH) Block Grant program supports a broad range of enabling, population-based, and direct health care services for over 44 million pregnant women and children, including children with special health needs.35  The program’s primary aim is to improve the health of all mothers and children in the U.S., focusing on low-income, uninsured, and underinsured persons. On average, 7.5 percent of those served by the program are uninsured.36

To estimate the share of MCH Block Grant spending that goes toward care for the uninsured, we calculate the share of total spending for each category of program recipient (pregnant women, infants, etc.) that is attributable to direct care services, 65.5 percent, and add a proportionate share of infrastructure expenditures. We then multiply this spending by the share of program recipients in each category who are uninsured, which produces an estimated $213 million in MCH spending (Table 10). Because some MCH spending comes from program income, we reduce estimated total spending on the uninsured by 33 percent and calculate an estimate of $142.7 million in uncompensated care for the MCH Block Grant.

We allocate MCH’s total spending on the uninsured among state/local, federal, and private funding sources by multiplying the MCH spending on the uninsured by the share of total program spending attributable to each source. The bulk of the funding, 69.5 percent is attributable to state/local governments, which accounts for $99.2 million. The federal government is responsible for 14 percent, $20.0 million, and private sources fund the remaining 15.7 percent, $22.4 million (Table 4).37

Table 10. Maternal and Child Health (MCH) Block Grant Spending on Care for Uninsured in US, 2013 ($millions)
Pregnant Women Infants<1 Children 1-22 Children w/ Special Health Needs All Others All Users
Total MCD Block Grant expenditures, 2013a $302.2 $405.1 $1,175.1 $3,593.7 $262.6 $5,738.7
Average share attributable to Direct Health Care & Related Infrastructure: 65.5*% $214.3 $287.3 $833.6 $2,549.2 $186.3 $4,068.7
Percent of users uninsured 5.4% 5.6% 5.7% 3.6% 24.7%
Est. MCH Block Grant spending on uninsured, 2013 $11.6 $16.1 $47.5 $91.8 $46.0 $213.0
Source: Maternal and Child Health Bureau, HRSA Title V Information System (TVIS), FY 2011,
a Included Federal allocation, match and overmatch, and program income.
b Inflation factor based on difference between 2011 actual Maternal and Child Health Bureau budget and President’s 2013 budget for the program. FY 2013 HHS Budget in Brief.


Uncompensated Care Provided by Site of Service Cost Shifting and Remaining Uncompensated Care Costs

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