In most developed economies, universal health insurance coverage is standard and healthcare is paid for using insurance that is either mandated for those who can afford the premiums or subsidized through taxes. In the US, however, insurance purchase was not mandated through the 2000s, and almost 20% of the nonelderly had no coverage. People with no or inadequate health insurance often turn to safety net providers when they get sick.
The US does not have a formal safety net, but rather a patchwork of providers including hospitals, federally qualified health centers, local health departments, community health centers, and others. Some of these providers have an explicit mission to serve low-income, uninsured people whereas others fulfill this role as part of broader community benefit activities.
This article discusses the economic issues relating to safety net providers and the lower income population for whom they care. The most fundamental economic barrier faced by the poor is the lack of health insurance. Beyond that, however, the poor often live in rural areas, have language barriers, and often suffer from chronic conditions, making this population more difficult to treat. On the provider side, the need to remain financially viable is often at odds with charitable missions to care for the poor. The Affordable Care Act (ACA) of 2010 aims to make it easier for everyone to get health insurance, removing one of the major barriers to accessing care. Safety net providers, however, are expected to continue playing a vital role in the provision of care to the most vulnerable.
Special Needs Of Lower Income Populations
Lower income populations have a number of attributes which can interfere with the efficient and effective delivery of healthcare services. First and foremost, they cannot afford adequate health insurance. They are uninsured, underinsured, or covered by Medicaid; and thus face problems with access and health outcomes. In addition to financial barriers, differences between patients and their providers can interfere with the provision of care. For lower income populations, such barriers include race, ethnicity, and language. Immigrants are especially prone to all three difficulties. Some groups with special needs are more likely to be living in poverty: children, pregnant women, and people with human immunodeficiency virus/acquired immune deficiency syndrome (HIV/AIDS). For the rural poor, geographic access barriers make it even harder to access care.
Insurance Barriers
The most effective safety net may be adequate insurance. Low income and uninsured people generally have poor access to medical care simply because they cannot afford to pay for services. There are areas that lack adequate primary care providers; however, more providers would be attracted to such areas if enough people had insurance. Unfortunately, it is hard to find affordable health insurance for those who do not work for large employers.
Health insurance coverage is associated with better access and better health outcomes. A lack of insurance often delays detection and can complicate treatment. The generosity of the insurance, measured by the physician compensation rates, may also help get patients seen in the right setting at the right time. Patients with insurance offering higher physician payments are less likely to go to hospitals for nonemergency conditions and are more likely to be seen in an ambulatory setting for conditions such as asthma and diabetes.
Even Medicaid, which generally pays providers much less than Medicare or commercial insurers, has improved its access to care for the poor. Although it would seem that expansions to Medicaid would help cover even more people, some research contends that public insurance reduces the demand for private insurance, whereby the more-expensive employer based private options are crowded out of the market. This does not necessarily mean that the proportion covered by some form of health insurance changes; simply that the proportion covered by Medicaid increases as the proportion covered by private insurance decreases. Medicaid patients can wind up back with private insurers if the state decides to privatize care, whereby the government pays premiums to private insurers. Privatizing public insurance may not, however, save money. Some studies have observed that shifting recipients into Health Maintenance Organizations (HMOs) can result in a net increase in the overall Medicaid spending.
With the implementation of provisions of the ACA in 2010 access to insurance should improve. However, this is not projected to achieve universal coverage as some people may choose to remain uninsured because their income is too high for a subsidy but too low to afford insurance premiums. As higher take-up rates should improve system efficiencies, insurance premiums may drop as more enroll, making coverage even more affordable.
Special Medical Needs
People living in poverty frequently have special medical needs. Children are a significant portion of the poor and they require specialized care. Substance abusers and the homeless are also poor and generally require more mental healthcare. Sometimes, conditions such as pregnancy or HIV/AIDS precipitate a cash drain that leaves people unable to afford insurance in the first place. Maintaining a regiment of treatment can be difficult among lower income populations, hence further complicating care.
Even in an environment structured to meet the specific needs of the poor, the simple economic concepts of efficiency and effectiveness are still important. Community health centers (CHCs) improve access to primary care for vulnerable populations. If it is easier for patients to get preventative and diagnostic care, then expensive complications are less likely to arise in the future. CHCs are preferred to moreexpensive hospital outpatient departments, where services are more intense and it is more difficult to maintain continuity of care.
The consumers themselves are also rational economic agents. Those in need are not necessarily unsophisticated buyers and seem to have a similar propensity to use primary care in lieu of emergency care, where it is available. This reinforces the importance of access. Unfortunately, those in need may not always get the highest quality of care. When quality is measured by the ranking of medical training institutions, uninsured patients are treated disproportionately by physicians from lower ranked schools and residencies.
Other Barriers
Any differences between the physician and the patient – race, language, ethnicity, etc – can interfere with effective provision of care. The true nature of a patient’s problems can literally be lost in translation, for example, potentially leading to missed diagnoses or delayed treatment. As many immigrants are poor and face such barriers, safety net providers must be capable of addressing a broad range of needs. As the languages supported by a private physician practice might be limited to English and Spanish, a safety net provider might have to offer Mandarin, Creole, Portuguese, etc. Economically, that raises the costs incurred by safety net providers relative to private practice.
There is much political rhetoric implying that immigrants are responsible for a significant share of uncompensated care or government-subsidized care. However, research shows that very little public tax money is spent on undocumented immigrants, who are less likely to use medical services and whose services cost less when used.
Geographic access barriers make it harder for anyone living in rural areas to get to providers. Simple transportation issues can present major logistic challenges for lower income people. Inadequate public transportation makes it hard for patients to keep appointments, increasing the difficulty and cost of executing a regiment of appropriate care. In addition to rural areas, living in an insurance dessert may also lead to bad health outcomes. Even for people who have health insurance, health service quality and access are worse in areas with higher proportions of uninsured people.
Challenges To Providers
Safety net providers face a number of challenges, both clinical and financial, in serving the needs of lower income populations. The patients often require more attention than the average patient, costing the providers more. Reimbursement, however, is often lower for these patients, compounding the financial strain on the safety net. Before going further, it is worth noting that there is no standard definition of ‘safety net’ providers; it varies from state to state. Many researchers classify safety net providers as those that provide a high ratio of uncompensated care. The financial challenges faced by the safety net providers start with the clinical aspects of care.
Difficult Clinical Care
In addition to problems in communication and transportation, lower income people are more likely to receive care in acute or urgent settings. As they are often uninsured or underinsured, many people living in poverty do not have a family physician. Medical problems are allowed to develop further because patients may hope the problem goes away before spending money to see a physician. Thus, by the time such patients do seek care, the condition is more complex and the severity of illness is greater. Although the poorer patients arrive sicker, safety net hospitals are still more efficient. Had the same mix of patients presented at for-profit hospitals, it may have cost the healthcare system even more.
Limited access to primary care services is not just the result of decisions by lower income patients on whether, where, or when to spend on healthcare. Managed care can indirectly make it harder for patients living in poor areas to access primary care physicians. HMO penetration is associated with limited access to primary care for poor patients. This may be the result of HMO patients crowding out poorer (possibly charity) patients, or it may be the result of HMOs not selling in primary care deserts. To the extent that the ACA reduces the proportion of the uninsured, it may mitigate complications resulting from delayed or forgone care. Once insured, a poor patient’s decision to see a doctor is easier and less costly. If they see their primary care physician sooner, ailments can be addressed in a more timely manner, and thus with lower costs and better expected outcomes.
Low Or No Reimbursement
In addition to having to care for patients suffering from more advanced conditions, safety net providers are generally paid less. Lower income patients are frequently uninsured or underinsured; either of which leaves the provider with the possibility of nonpayment. Or the patient might be covered by Medicaid, which normally pays less than any other payer. Providers with a disproportionate share of lower income patients will have limited ability to cross-subsidization or cost-shift to better-paying patients. Cost shifting occurs when hospitals use profits from more-generous payers to subsidize uncompensated care. As such, safety net provider cannot subsidize the more expensive care needed by poorer patients with profits from better-paying patients.
Even charitable and not-for-profit providers must obey the laws of economics; to stay in business, they have to at least break even. There is ample evidence that providers respond to financial incentives even when fulfilling their safety net missions. Safety net hospitals reduce their uncompensated care when insurer fees decrease. When Medicaid fees are cut, physician respond not only by seeing Medicaid patients less often, but also by reducing the time spent when they do see the patient. In both cases, providers are simply responding to lower fees by offering less. Higher Medicaid fees are associated with increases in the number of services, the intensity of services, and the number of private physicians willing to care for Medicaid patients.
By making health insurance easier to obtain, one of the goals of the ACA is to move patients from self-pay to insured, removing reimbursement as a barrier to care.
Profit Motive And Access
The healthcare system in which providers operate does not give much incentive for providing care to uninsured and underinsured, exacerbating the access issues for lower income populations. Simple profit motives explain why for-profit hospitals provide significantly less uncompensated care than do public hospitals. Although for-profit hospitals are expected to provide some level of community benefit, their primary mission is to provide their investors with good returns, making charity care a lower priority. Many for-profit hospitals are affiliated to larger healthcare systems, which may further weaken the ties to one particular local community and their needs. For-profit status does not preclude a hospital from acting as a safety net provider, but it is more common in areas with less market pressure. Even when hospitals appear to be paying more attention to lower income patients, it often takes government financial incentives for charity care to illicit that reaction. Quite simply, for-profit hospitals are duty bound to provide a return for investors, and charity care cuts into profits.
Not-for-profit providers must also devise ways to survive financially. Here, too, it often involves trade-offs wherein market conditions put financial pressures on the providers to limit charity care. Hospitals provide significantly less uncompensated care in markets with higher HMO penetration. Even nonsafety net hospitals provide more uncompensated care in areas with lower levels of hospital competition, perhaps because of greater community expectations. One way that hospitals used to pay for uncompensated care was through cost shifting. However, insurer price pressures have reduced hospital revenues, leaving little surplus from private insurers to cover uncompensated care.
Disproportionate share payments provide an example of multiple financial incentives working at conflicting purposes. By improving reimbursement levels, it became easier for Medicaid patients to access better hospitals and doctors. However, this left safety net hospitals with fewer Medicaid patients, effectively increasing their relative share of uninsured and underinsured, putting them under further financial pressure. Disproportionate share payments are one possible remedy, providing relatively higher reimbursement to hospitals with a higher proportion of Medicaid patients. However, the allocation of such payments is left to state governments, resulting in multiple methods and unclear effectiveness.
The complexity of the healthcare system in the US can even result in unexpected problems associated with something as simple as a policy to expand Medicaid. On the positive side, this kind of broader access to insurance can reduce the need for safety net providers. However, some studies have found that expanding Medicaid resulted in decreased access for the uninsured because financial motives make hospitals more interested in Medicaid patients than charity patients. Furthermore, because higher reimbursements from Medicaid give poor patients access to a broader range of providers, for-profit hospitals seem to be skimming some of the more lucrative patients, such as Medicaid births. With safety net hospitals now losing Medicaid revenues that could have subsidized uncompensated care, what started as an attempt to help Medicaid patients can end up worsening the financial condition of safety net hospitals.
Taking a cue from insurer tools to avoid adverse selection, some hospitals alter their location or product mix to become less attractive to uninsured patients. By eliminating emergency rooms, AIDS units, maternity care, and substance abuse programs – all departments that attract a disproportionate share of nonpaying patients – hospitals can improve their profitability. For-profit hospitals are also located in better-insured areas, which naturally have less need for uncompensated care.
If uninsured patients still find their way to a provider, the latter can minimize losses by simply doing less. Publicand church-owned hospitals consistently provide more uncompensated care than for-profit hospitals, which may use the existence of a public hospital in the area as an excuse to provide less uncompensated care. For-profit hospitals skim profitable patients from all competitors, including safety net hospitals. This often leaves safety net hospitals under an increased financial pressure.
Precarious Future
Safety net providers are toiling under increasingly difficult financial conditions, making it impossible to provide as much care as needed. The safety net is currently inadequate and is increasingly weakening. State and local governments spending on health and hospitals is critical for providing care for the most disadvantaged populations. The recent economic recession has led to significant funding cuts, which generate serious concerns regarding the viability of the safety net systems.
Financial pressures have led many states to subcontract and privatize services. Medicaid HMOs have already been in use for years, yet have not demonstrated the ability to reduce costs. Privatization may not be the sensible financial decision because most commercial plans are not effective in targeting the special needs of the Medicaid population. Furthermore, their for-profit status gives for-profit Medicaid subcontractors conflicting incentives. For example, though it would improve the profitability of a privatized contract, insurer efforts to reduce service volumes could be extremely harmful to Medicaid recipients, many of whom suffer from chronic conditions.
The healthcare system in the US is extremely complex. Politicians, hospitals, physicians, and insurers often make decisions based on incomplete, incorrect, or misinterpreted information. One common belief is that doctors lose money on uninsured patients. In an irony borne out of the convoluted machinations of a semi market-based healthcare system, uninsured are likely to pay more for physician services. Virtually no insurer pays a provider’s usual and customary fee, but that is what patients with no insurance are charged. Even after allowing for a share of uninsured patients who pay nothing, physicians actually make higher profits on uninsured than they do on insured patients. Put another way, physicians would have higher profits if they only accepted uninsured patients. Yet most physicians and policymakers believe the opposite to be true.
The expanded insurance availability under the ACA will bring many previously uninsured people into the traditional healthcare system, reducing the need for a safety net. Under the ACA, safety net providers are expected to continue playing a vital role as some people will still not be able to afford insurance; but they may be able to afford a reduced cost and a reduced benefit option. Some amount of insurance education will also be needed, perhaps giving safety net providers an expanded advocacy role. Many signing up for newly available insurance plans may be unfamiliar with how to get the most out of their coverage. Safety net providers are already familiar with these patients, so they may be best situated to help them navigate the healthcare system. As noted earlier, safety net providers are attuned to the specific needs of this population. Therefore, even if the ACA allows lower income populations to get care at their choice of providers, their best choice may still be a safety net provider.
References:
- Baker, L. C. and Royalty, A. B. (2000). Medicaid policy, physician behavior, and health care for the low-income population. The Journal of Human Resources 35, 480–502.
- Bazzoli, G. J., Lindrooth, R. C., Kang, R. and Hasnain-Wynia, R. (2006). The influence of health policy and market factors on the hospital safety net. Health Services Research 41, 1159–1180.
- Bazzoli, G. J., Manheim, L. M. and Waters, T. M. (2003). U.S. hospital industry restructuring and the hospital safety net. Inquiry 40, 6–24.
- Cunningham, P. J., Bazzoli, G. J. and Katz, A. (2008). Caught in the competitive crossfire: Safety-net providers balance margin and mission in a profit-driven health care market. Health Affairs 27, 374–382.
- Davidoff, A. J., LoSasso, A. T., Bazzoli, G. J. and Zuckerman, S. (2000). The effect of changing state health policy on hospital uncompensated care. Inquiry 37, 253–267.
- Gaskin, D. J., Hadley, J. and Freeman, V. G. (2001). Are urban safety-net hospitals losing low-risk Medicaid maternity patients? Health Services Research 36, 25–51.
- Gresenz, C. R., Rogowski, J. and Escarce, J. J. (2007). Health care markets, the safety net, and utilization of care among the uninsured. Health Services Research 42, 239–264.
- Hadley, J. and Cunningham, P. (2004). Availability of safety net providers and access to care of uninsured persons. Health Service Research 39, 1527–1546.
- Lindrooth, R. C., Bazzoli, G. J., Needleman, J. and Hasnain-Wynia, R. (2006). The effect of changes in hospital reimbursement on nurse staffing decisions at safety net and nonsafety net hospitals. Health Services Research 41, 701–720.
- LoSasso, A. T. and Seamster, D. G. (2007). How federal and state policies affected hospital uncompensated care provision in the 1990s. Medical Care Research and Review 64, 731–744.
- Marquis, M. S., Rogowski, J. A. and Escarceo, J. J. (2004). Recent trends and geographic variation in the safety net. Medical Care 42, 408–415.
- Pauly, M. V. and Pagan, J. A. (2007). Spillovers and vulnerability: The case of community uninsurance. Health Affairs 26, 1304–1314.
- Volpp, K. G., Ketcham, J. D., Epstein, A. J. and Williams, S. V. (2005). The effects of price competition and reduced subsidies for uncompensated care on hospital mortality. Health Services Research 40, 1056–1077.
- Zwanziger, J. and Khan, N. (2008). Safety-net hospitals. Medical Care Research and Review 65, 478–495.