Managed Care Cost Pressures Threaten Access for the Uninsured

Originally published by the Center for Studying Health System Change (HSC). HSC was a nonpartisan policy research organization funded principally by the Robert Wood Johnson Foundation.

Managed Care Cost Pressures Threaten Access for the Uninsured

Issue Brief No. 19, March 1999

Americans without health insurance have long relied on the safety net for medical care. This patchwork of providers includes physicians who voluntarily treat patients free or at reduced rates, along with public and teaching hospitals, community health centers, and other institutions. With the number of uninsured people in the United States reaching 43 million -- growing by roughly 1 million per year for the past decade -- the safety net was becoming increasingly critical. But evidence was mounting that this safety net was fraying, in part because of changes being driven by managed care's growing presence in health care markets. This Issue Brief presents findings from HSC's Community Tracking Study showing that higher managed care penetration was associated with physicians providing less charity care and with reduced access to care for uninsured people.

The Managed Care Effect on Safety Net Access

Changes sweeping through the health care system were straining safety net providers. Growing concern centered on whether managed care's financial and competitive pressures were eroding providers' capacity to offer uncompensated care. HSC's Physician and Household Surveys yielded four significant findings: physicians with heavy managed care revenue provided 40 percent less charity care; physicians in high managed care communities provided less charity care regardless of personal involvement; low-income uninsured reported worse access in high Medicaid managed care areas; and the access gap between insured and uninsured people was larger where Medicaid managed care had greater market share.

How Managed Care Strains the Safety Net

For decades, providers subsidized indigent care by shifting costs onto other payers. As managed care expanded in both public and private insurance, health plans drove down payment rates, making cross-subsidies harder to maintain. Traditional safety net providers faced rising competition for Medicaid managed care patients -- revenue essential for survival and for covering uninsured patients. Additional pressures included growing numbers of uninsured Americans and cuts to public subsidies for indigent care under the Balanced Budget Act of 1997.

Physician Charity Care Under Managed Care

Physicians represent a substantial piece of the safety net. HSC's survey found 77 percent of doctors provided at least some charity care, averaging 10.3 hours per month. The findings showed more managed care meant fewer hours of free care for the poor. Physicians with 85 percent or more managed care income provided roughly half as much charity care as those with none. Community-level penetration also mattered, with physicians in highest-penetration areas providing 25 percent less charity care.

Practice structure played a role too. Physicians in medium to large groups were one-third less likely to offer charity care than solo practitioners. Physicians with ownership stakes were nearly twice as likely to provide charity care. The growing trend toward larger, more formalized practice arrangements raised concerns about further erosion. Physicians provided more charity care where public hospitals were scarce and where teaching hospitals were plentiful.

Access Barriers for Uninsured Low-Income People

In communities with high Medicaid managed care penetration, barely half of low-income uninsured had an ambulatory care visit in the past year, compared with more than 60 percent where Medicaid managed care was minimal. Uninsured people were about 75 percent more likely to lack a usual source of care in high Medicaid managed care states. The insured-uninsured gap was especially pronounced: 2.5 times more likely to lack usual care in low Medicaid managed care areas, but over four times more likely in high areas. Overall managed care penetration showed little independent effect, pointing to Medicaid managed care as the dominant factor. Community uninsurance rates also mattered independently -- higher rates meant worse access.

Broader Implications

These findings raised serious questions about the safety net's future. An apparent side effect of managed care's efficiency drive was the loss of payment margins providers used to cross-subsidize indigent care. Two caveats applied: the causal mechanisms were not directly measured, and the cross-sectional analysis could not definitively prove managed care growth was actively eroding access. However, the uninsurance rate was at least as high in areas with heavy managed care as in areas with little of it, suggesting access costs were not offset by fewer uninsured.

Policy Directions

The American health system relied on private cross-subsidization to fund indigent care -- unusual among industrialized nations. When margins were squeezed by public payment policies or managed care purchasing, these cross-subsidies came under threat. Policy responses fell into three categories: expanding coverage (through CHIP or universal approaches), easing pressure on provider payment rates, or directing explicit subsidies to safety net providers. Given documented access problems, more fundamental changes might be needed.

Data Sources

This analysis drew on the Community Tracking Study Household Survey (nearly 33,000 families, 60,000 individuals) and Physician Survey (over 12,000 physicians) conducted in 60 randomly selected communities between July 1996 and August 1997, both achieving 65 percent response rates.

Sources and Further Reading

Kaiser Family Foundation — Annual data on employer-sponsored health insurance.

CMS — Health Insurance Marketplace — Federal marketplace information.

Health Affairs — Peer-reviewed health policy research.

Robert Wood Johnson Foundation — Health policy research.

Commonwealth Fund — Research on health care coverage.