Spotlight Exclusives

California Law Protects Uninsured Patients from High Hospital Charges

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While universal health coverage is a laudable goal, realistically we are still a long way off from this ideal. Even after implementation of the Affordable Care Act (ACA), millions of Americans will remain uninsured, and thus continue to rely on hospital emergency rooms for much of their medical care. Unfortunately, there is little regulation of these types of services, allowing hospitals to charge steep prices to many of our country۪s most marginalized and vulnerable. In light of this reality, a recent California law shows how we can ensure that the uninsured receive the care they need at a price they can afford.

Uninsured patients treated in hospital emergency departments receive bills based on what hospitals refer to as their “billed charges.” Currently, there is no limit on the level that most hospitals can set these charges. And since most insurance companies and Medicare pay hospitals amounts that are a fraction of their billed charges, there is little, if any, external market pressure to restrain increases in billed charges.

These costs would place a severe burden on anyone, but the problem is especially acute given the socioeconomic circumstances of the uninsured. Those without health coverage generally have low incomes, with nearly 40 percent of uninsured Americans living below the poverty line. Unexpectedly large medical bills can impose a sizable financial burden on uninsured families, and, in some cases, medical debt can contribute to a collapse of creditworthiness, all too often leading to personal bankruptcy.

Our research shows that the problem has only grown worse. In 1997, billed charges were 237 percent of the amount paid by Medicare for covered services. By 2010, that number had ballooned to more than 500 percent; making the difference between full billed charges and the amount paid by Medicare more than $10,000 per patient per day spent in the hospital.

Several states have adopted legislation to address this problem. Recently, we assessed the effectiveness of one of the strictest of these new laws, California۪s 2006 Hospital Fair Pricing Act (HFPA), designed to protect low-income uninsured patients from having to pay hospitals۪ full billed charges. This law included specific language limiting the amount that hospitals can collect from the uninsured (for example, no more than what Medicare or the relevant government-sponsored program would have paid for the same service), regardless of how high a hospital sets their charges. Our study relied on a unique database collected by the State of California that allows measurement of charges to the uninsured and actual payments to hospitals by the uninsured between 1997 and 2010, along with mandatory reports from each hospital that included data on their prices for uninsured patients.

Our findings indicate that the HFPA has succeeded in protecting uninsured Californians. By 2011, most California hospitals had adopted fair pricing policies in compliance with the state law, with some hospitals implementing policies that were more generous than required. Eighty-one percent of hospitals reported charging prices that were at or below Medicare rates when an uninsured patient۪s income was 301-350 percent of the federal poverty level ($32,779$38,115 for an individual in 2011). And 32 percent of hospitals reported charging prices at or below Medicare rates when an uninsured patient had an income above 350 percent of the poverty line.

Importantly, while the state۪s fair pricing law did not require hospitals to provide any free care, 97 percent of all California hospitals reported offering free care to uninsured patients with incomes at or below the poverty line. Overall, our study demonstrated that following the HFPA۪s passage, California hospitals reduced the amount they collected from the uninsured.

While the ACA will provide some relief to millions of people, the financial burden associated with high hospital charges is likely to remain a significant challenge for large numbers of uninsured patients. California۪s fair pricing law, which prompted most hospitals to evaluate their prices for the uninsured, provides a promising model for policymakers in other states looking to implement financial protections for their uninsured and low-income populations. 

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Glenn Melnick is the Blue Cross of California Professor of Health Care Finance and Katya Fonkych is a research associate at the Center for Health Financing, Policy, and Management at the University of Southern California.

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