Reinsuring the Insurers of Last Resort

David Dranove, Craig Garthwaite and Christopher Ody

No 29892, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Hospitals face large and variable costs from treating indigent care patients. Two methods of “reinsuring” hospitals against these costs are providing these patients with insurance and directly providing hospitals with supplemental payments to cover the expected costs of treating the indigent. Currently, the U.S. uses a hybrid of these approaches, insuring some indigent patients through Medicaid and providing hospitals with supplemental payments through programs such as Medicaid Disproportionate Share. We evaluate the economic fundamentals of supplemental payments in the U.S. safety net. We find that providing indigent care patients with insurance and providing hospitals with supplement payments are imperfect substitutes to hospitals because they differ in the extent to which they protect hospitals from risk, incentivize cost control, and and incentivize certain investments. Overall, we find that supplemental payments are used to increase access to hospitals in areas with many indigent patients, rather than to provide efficient intertemporal risk-protection to hospitals or incentivize cost control.

JEL-codes: H0 H4 I1 I13 I18 (search for similar items in EconPapers)
Date: 2022-03
New Economics Papers: this item is included in nep-hea and nep-ias
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