Rising underinsurance rachets pressure on hospitals

The number of underinsured working-age adults in the United States has soared over the past 14 years — reaching 23% this year. And that is adding stress to hospital finances.

The share of underinsured was identified in a November survey by the Commonwealth Fund, which also found:

• 56% of working-age adults were insured for the preceding year, with coverage adequate to ensure affordable access to care
• 9% of adults were uninsured
• 12% had a gap in coverage over the previous year

The shares of underinsured and uninsured have flipped since the enactment of the Affordable Care Act (ACA) in 2010. That year, 16% were underinsured, while 20% were uninsured.

The Commonwealth Fund defined underinsured as those with full-year insurance who experienced one of the following:

• Out-of-pocket costs, excluding premiums, equaling 10% or more of household income
• Out-of-pocket costs, excluding premiums, equaling 5% or more of household income if low income (<200% of poverty)
• Deductibles equaling 5% or more of household income

Underinsurance does not account for premium costs. 

Who are the underinsured?

Based on a nationally representative sample of 6,480 pre-Medicare-age adults, the Commonwealth Fund survey found that the 23% who were underinsured comprised:

• 66% with employer-sponsored insurance
• 14% with individual or ACA marketplace insurance
• 11% with Medicaid
• 6% with Medicare
• 4% with other

Such underinsurance affected patients’ ability to get timely healthcare, the survey authors found. Fifty-seven percent of working-age adults who were underinsured said they did not get needed care because of the cost. Examples of forgone needed care included not getting clinical care when ill, skipping a recommended follow-up visit or test, not seeing a specialist when recommended and not filling a prescription.

“What we highlighted here is that there are situations where individuals might need certain critical exams either for prevention or treatment, where copays and deductibles put those out of reach,” said Joseph Betancourt, MD, president of the Commonwealth Fund. “They have very significant implications for long-term well-being and cost.”

The increased incidence of underinsurance was blamed on the expansion of high-deductible health plans (HDHPs) among all types of commercial insurance. The share of private-industry workers with access to HDHPs was 24% in 2010, while enrollments in such plans reached 51% in 2023, according to the U.S. Bureau of Labor Statistics.

And a Kaiser Family Foundation survey found that the amount of the average deductible has steadily increased, including a 28% increase from 2018 to 2022 and a 52% increase between 2012 and 2017.

Similarly, the prevalence HDHPs in the ACA marketplace, which can go as high as $7,258 for individual coverage, was cited as driving underinsurance among those enrollees.

In contrast, noted Sara Collins, PhD, senior scholar and a vice president for the Commonwealth Fund, underinsurance in Medicaid and in Medicare among those who are younger than the standard Medicare enrollment age primarily affected people with disabilities, who can have high spending and very limited incomes.

Hospital effect

The rising number of underinsured patients is having a growing financial impact on hospitals. For instance, patients with some form of insurance coverage accounted for 53% of the estimated $17.4 billion that hospitals, health systems and medical practices wrote off as bad debts in 2023, according to a Kodiak Solutions benchmarking report.

Moreover, the collection rate from patients in 2022 and 2023 was 47.6%, down sharply from 54.8% in 2021.

“While uncompensated care has always been an issue for hospitals, we’ve seen it grow and become more prevalent, even after the expansion of coverage through the ACA, as a result of these changes in benefit design that have pushed more cost-sharing onto individuals,” said Chad Mulvany, a director in Forvis Mazars’ healthcare consulting practice.

Kodiak Solutions previously found deductible amounts or the residual amount due from the patient after insurance payment reached nearly 60% of hospitals’ bad debt in 2021. That was a five-fold increase in just three years and was the first time self-pay-after-insurance accounts were the leading source of bad debt for hospitals.

Bad debt and charity care per day increased 20% year to date (YTD) in 2024 compared with YTD 2021, based on the 1,300 hospital sample in the Kaufman Hall’s September National Hospital Flash Report.

Additionally, Colorado’s most recent annual report on hospital transparency found that bad debt at the state’s hospitals increased 8%, or $16.2 million, from 2019 to 2022.

The problem of underinsurance is increasingly affecting health system business lines most exposed to patients with HDHPs, said one health system COO.

“If you’re talking about commercial patients, the biggest issue you encounter from a health system standpoint is the challenge that we have to figure out how to work with is the high deductible health plans,” said the COO, who asked not to be named. “It pushes a lot of administrative burden onto the provider side in terms of collection of dollars, revenue cycle operations and adds the patient to that mix.”

Health systems have seen increasing collection challenges because they often do not know at the point of service how much patients with such coverage will owe, he said.

“That increases the amount of bad debt exposure that a health system has,” the COO said. “When you talk about underinsurance, that’s how I see it, especially on the [ACA] exchanges.”

Hospitals efforts on that front were seen in another Kodiak report that found hospital point-of-service cash collections increased 13% year-over-year in November.

State action

The increasing shift of financial burdens onto patients in the form of large and growing deductibles has led more states to enact laws to shield insured patients from hospital efforts to collect on their out-of-pocket portion.

A report by a Maryland state agency found hospitals had misclassified a large number of patients under bad debt instead of charity care. In response, in 2020, Maryland enacted a requirement that hospitals consider patients already enrolled in other need-based programs for low-income residents as “presumptively eligible” for charity care.

In 2023, Oregon enacted a bill requiring nonprofit hospitals to screen patients for presumptive eligibility for financial assistance if they are uninsured or owe more than $500. 

In response to activist and political pressure, the three primary credit-reporting companies in 2022 made significant changes to medical debt reporting, including excluding medical collections of less than $500 from consumer credit reports.

However, as of June 2023, 15 million Americans still had medical debt on their credit reports, according to the Consumer Financial Protection Bureau.

An Urban Institute report identified where such collections are concentrated (to the greatest extent in Southern states), which may indicate where future state legislation targeting hospital revenue cycle practices could advance.

Increasing policymaker scrutiny of hospitals, Mulvany said, should push them to ensure underinsured patients who are eligible for assistance under their policies obtain it. Additionally, that assistance needs to be captured and reported on their Medicare cost reports and federal tax filings.