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Uncompensated Care and the Collapse of Hospital Payment Regulation: An Illustration of the Tinbergen Rule

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  • Jeffrey Clemens
  • Benedic Ippolito
Abstract
The primary objective of “all-payer†rate setting—regulatory regimes through which states set hospital payment rates for all insurers—was to control costs through consistent, centrally regulated payments. These regimes were often linked, however, to an ancillary goal of financing care for the uninsured. We show that the surcharge mechanism used to achieve this secondary objective decreased the stability of these payment regimes. This instability reflected a feedback loop from surcharge rates to insurance coverage and back to the quantities of uncompensated care in need of financing. Instability was exacerbated when Health Maintenance Organizations were exempted from surcharge collections, creating a regulatory arbitrage opportunity. Legal challenges connected to the incidence of uncompensated care surcharges contributed to the abandonment of all-payer rate regulation by several states. These developments illustrate the wisdom of the Tinbergen Rule, which recommends that independent policy objectives be met with independent policy instruments.

Suggested Citation

  • Jeffrey Clemens & Benedic Ippolito, 2019. "Uncompensated Care and the Collapse of Hospital Payment Regulation: An Illustration of the Tinbergen Rule," Public Finance Review, , vol. 47(6), pages 1002-1041, November.
    • Handle: RePEc:sae:pubfin:v:47:y:2019:i:6:p:1002-1041
    DOI: 10.1177/1091142119871333
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    1. Hill, Elaine L. & Slusky, David J.G. & Ginther, Donna K., 2019. "Reproductive health care in Catholic-owned hospitals," Journal of Health Economics, Elsevier, vol. 65(C), pages 48-62.

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    More about this item

    Keywords

    rate regulation; health insurance; uncompensated care; cross subsidization;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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