Do the uninsured demand less care? Evidence from Maryland’s hospitals

This is a fee for service environment, but is unusual in that hospital- rate center- specific prices are set by the HSCRC. Additionally, there are limits to the total number of services a hospital can provide in a year based on their aggregate patient mix.

A patient is categorized into a listing of diagnosis or procedure. This initial categorization is the root Diagnosis Related Group (DRG). There are 314 root DRGs in Maryland. Once the root DRG has been established, secondary diagnosis and other factors (obesity, other illnesses) are then considered and the patient is assigned a severity class (1–4). For severity, the 1–4 scale runs low to high. The combination of the root DRG and the level of severity form the APRDRG (Systems 2013).

For more information on the rate setting system in MD, please see https://​hscrc.​state.​md.​us/​Documents/​pdr/​GeneralInformati​on/​MarylandAll-PayorHospitalSys​tem.​pdf.

For government payers there is, at most, a 6% difference between Medicare/Medicaid and non-Medicare/Medicaid patients. This doesn’t create an incentive to provide fewer services to government payers, however, because when a hospital’s base rate is established, the fraction of government patients is considered and built into the base rate. If a hospital serves more government payers, its base rate increases the next year, if it serves fewer, it declines. As such, a hospital has no financial incentive to provide a differential service mix to different payers. Details of how the base rate is established can be found in Appendix 1.

Some individuals may chose to be uninsured if they believe their private health signal is very good, believing they will not get sick or injured. One might be concerned that individuals with good private health information may be healthier than average and more likely to be uninsured. However, in the data, I restrict my sample to inpatient admissions. Figure 3 illustrates that there is not a clear relationship between APRDRG weight (a measure of severity) and services. Furthermore, Long et al. (1998) find that individuals are unable to anticipate changes to insurance status to take advantage of periods of relatively generous insurance. This suggests that reductions to services observed in this paper are not ‘consumption smoothing’ on the part of the uninsured. While some young people improperly estimate their risks of illness, and have been termed the ‘young invincibles’ (Smith 2014), the remainder of this analysis will focus on an income constraint as being the driving motivation for remaining uninsured.

I only observe if a patient returns to the same hospital for an additional visit. I can not observe I they go to Hospital A and then Hospital B. This is a limitation of the data, and of the study.

This assumes that their job is n the formal sector and is paying payroll taxes on their behalf.

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