FEB 26, 2018
Opinions
expressed by Forbes Contributors are their own.
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I recently did an interesting interview with Dan
Gorenstein, a health care reporter with station WHYY and NPR's
radio business show Marketplace on the issue of tax-financed
health care for undocumented immigrants [1]. The piece that aired did not
include any of my remarks, but I thought it would be useful to give readers my
perspective on this knotty policy question based on both background research I
did to prepare for the interview and follow-on research I did in light of the
questions posed in the interview.
Current federal policy is to prohibit federal
tax funding of health care to undocumented immigrants through either Medicaid
or Obamacare. Nevertheless, rough estimates suggest that the nation's 3.9
million uninsured immigrants who are undocumented likely receive about $4.6
billion in health services paid for by federal taxes, $2.8 billion in health
services financed by state and local taxpayers, another $3.0 bankrolled through
"cost-shifting" i.e., higher payments by insured patients to cover
hospital uncompensated care losses, and roughly $1.5 billion in physician charity
care. In addition to these amounts, illegal immigrants likely benefit from at
least $0.9 billion in implicit federal subsidies due to the tax exemption for
nonprofit hospitals and another $5.7 billion in tax expenditures from the
employer tax exclusion.
All told, Americans cross-subsidize
health care for illegal immigrants to the tune of $18.5 billion a year .
Of this total, federal taxpayers provided $11.2
billion in subsidized care to undocumented immigrants in 2016 .
In this post, I describe in more detail current
policy, current sources of funding for health care of unauthorized immigrants.
In a follow-on post, I will offer four independent reasons federal tax
funding for such care is a bad idea (that is, a reader need only accept one,
not all, in order to conclude we should dispense with such funding).
A map of Mexico as it was in 1794 is displayed as young immigrants
and their supporters rally in support of Deferred Action for Childhood Arrivals
(DACA) in Los Angeles, California on September 1, 2017. A decision is expected
in coming days on whether US President Trump will end the program by his
predecessor, former President Obama, on DACA which has protected some 800,000
undocumented immigrants, also known as Dreamers, since 2012. / AFP PHOTO /
FREDERIC J. BROWN (Photo credit should read FREDERIC J. BROWN/AFP/Getty
Images)
Current Policy Regarding
Federal Funding of Health Care for Undocumented Immigrants
The purported intent of federal policy is
to prevent federal tax dollars from being used to fund health care for
undocumented immigrants except in extreme circumstances. Notwithstanding
express prohibitions contained in the statutes related to Medicaid and
Obamacare, there also are companion federal programs that permit federal
funding to be used for health care of undocumented immigrants indirectly.
Where Use of Federal
Dollars to Fund Health Care for Undocumented Immigrants is Expressly Prohibited
Medicaid.
Under Medicaid and CHIP (Children's
Health Insurance Program), no federal funding may be used to cover undocumented
immigrants, except for payment for limited emergency services. Specifically,
"Medicaid payments for emergency
services may be made on behalf of individuals who are otherwise eligible for
Medicaid but for their immigration status. These payments cover costs for
emergency care for lawfully present immigrants who remain ineligible for
Medicaid as well as undocumented immigrants."
Moroever, states can and do use state-only
Medicaid programs to cover such individuals. For example, California's Health
for All Kids Act provides undocumented-immigrant children with access to
coverage through Medi-Cal, the state Medicaid program. Its passage in 2015 made
California the largest state to use state-only funding to provide coverage to
all children regardless of immigration status; in doing so, it joins New York,
Illinois, Massachusetts, Washington, and the District of Columbia.
ACA. Under
the ACA, immigrants must be
lawfully present to purchase insurance in a Qualified Health Plan, or to be
eligible for an Advance Payment for Premium Tax Credit or Cost-Sharing
Reduction. Under legislation signed by Governor
Jerry Brown in June 2016, California would have been the first state to allow
undocumented immigrants to purchase health plans through its insurance exchange
without fear that their information would be shared with other government
agencies. The law directed California’s exchange, Covered California, to apply
for a State Innovation Waiver to allow people who would be eligible for the
exchange if not for their immigration status to purchase California Qualified
Health Plans (QHPs), which provide benefits identical to those included in
other ACA-compliant QHPs. This policy requires a waiver because it involves an
alteration to the original terms of the ACA, which bars the participation of
undocumented immigrants in state exchanges. However, this waiver request
was withdrawn on
January 18, 2017.
Where Use of Federal
Dollars to Fund Health Care for Undocumented Immigrants is Indirectly
Permitted
The "clear intent" of
restrictions embedded in Medicaid and Obamacare is undercut by several
end-arounds that allow health care for illegal immigrants to be indirectly
funded using federal dollars.
Medicaid DSH Payments. First,
there is a source of Medicaid financing that indirectly benefits
undocumented immigrants: DSH payments [2]. Kaiser Family Foundation reports "DSH,
or “disproportionate share” hospitals are hospitals that serve a large number
of Medicaid and low-income uninsured patients...At the facility level, Medicaid
DSH payments are limited to 100 percent of the costs incurred for serving
Medicaid and uninsured patients that have not been compensated by Medicaid
(Medicaid shortfall)." The DSH program simply provides a general subsidy
against a hospital's aggregate uncompensated care losses from uninsured
patients. Nothing requires hospitals to back out their spending
on uncompensated care for undocumented immigrants from their aggregate losses;
consequently, federal Medicaid funds end up indirectly subsidizing their care even
though it would be expressly illegal to pay for their care by making them
direct Medicaid recipients.
Medicare DSH Payments. In
a similar fashion, although the formula is much more complicated, Medicare
also pays hospitals a DSH payment that effectively serves as a general subsidy
to offset aggregate uncompensated care losses without making any distinction
between uncompensated costs generated by undocumented immigrants and those
generated by American citizens or legal immigrants.
Community Health Centers.
Federally qualified health centers provide primary healthcare, dental, mental
health and pharmacy services. They treat all comers without concern for immigration
status or ability to pay for care.
Tax Exemption.
Nonprofit hospitals (and other health facilities) receive tens of
billions of dollars annually in benefits from the federal tax
exemption including forgone taxes, public charitable contributions, and
the value of tax-exempt bond financing. Undocumented immigrants benefit
from this federal largesse.
Employer Tax Exclusion. The
employer tax exclusion provides an indirect federal tax subsidy to everyone
with employer-sponsored health insurance. Noncitizen immigrants are admittedly
less likely to have such coverage than natives, but the differential is less than 10 percentage points after
adjusting for the most important demographic/socioeconomic characteristics.
From where I sit (a libertarian-leaning
conservative health reformer), current policy makes a lot of sense. It allows
states or localities to opt to provide health care for undocumented immigrants
using local tax resources. In a country of 320 million people with deeply
divided views on this issue, the federalist approach seems far preferable to
trying to adopt a one-size-fits-all policy that forces tens of millions of
federal taxpayers to subsidize lawbreakers against their will.
Moreover, my view is that if the intent of
federal policy is to prevent taxpayer resources from being used to finance
health care for undocumented immigrants, federal officials have an obligation
to be vigilant this does not occur inadvertently and a parallel obligation to
be transparent if it does. That was the purpose of my writing an earlier post on this
issue 20 months ago.
Current Funding for Health
Care of Illegal Immigrants
Uninsured Illegal
Immigrants. According to Pew
Research Center, there were 11.3 million unauthorized immigrants in the U.S. in
2016. Currently, 14% of the uninsured (3.9 million) are
undocumented immigrants who are ineligible for both Medicaid and ACA coverage under federal
law. For purposes of discussion, I am going to focus principally on financing
health care for undocumented immigrants who are uninsured since we know that
about 70% of care for America's uninsured is uncompensated, meaning that
ultimately it is paid for by society in one way or another.
Specifically, in 2013 (the latest available such
figures), America's uninsured generated $84.9 billion in uncompensated care
costs [Table 2] or $1,257 per
person who was ever uninsured that year [Table 1]. Of this:
·
39% was covered by
various federal programs (e.g., disproportionate share payments to hospitals);
·
23% by state and local
governments (e.g., via taxpayer support of state and locally owned hospitals);
·
12% came in the form of
physician charity care covered;
·
25%--was covered by hospitals
(arguably by "cost-shifting" i.e., higher charges to privately
insured patients that effectively cross-subsidize care for patients who do not
pay full freight etc.). An unknown fraction of this stems from EMTALA--the
Emergency Treatment and Active Labor Act--a federal law that requires hospitals
to treat emergency patients regardless of their ability to pay. EMTALA is an
example of "taxation by regulation" insofar as the same outcome might
have been achieved by using tax dollars to pay hospitals to treat such patients
voluntarily.
Assuming undocumented immigrants received a pro
rata share of such support (i.e., 14%), they account for the $11.9
billion in uncompensated care costs, financed as follows:
·
$4.6 billion--federal taxpayers
·
$2.8 billion--state and local taxpayers
·
$3.0 billion--hospital charity care/bad
debts arguably cost-shifted to private patients
·
$1.5 billion--physician charity care
I recognize these back-of-the-envelope figures
are crude, but they are the best estimates I could make given that the recent
National Academy of Sciences report The Economic and Fiscal Consequences of Immigration only
provides highly aggregated estimates of cost impacts, with no breakdown of how
much of these costs can be attributed to health care etc.
Federal Taxpayers. It
might puzzle some readers that the federal government is paying for any care
for undocumented immigrants in light of federal policy. This can happen
through fraud, to be sure, but as
explained earlier, most of this occurs indirectly through various federal
programs that fund institutions rather than individuals. These include
hospitals (Medicaid/Medicare DSH payments) and community health centers/free
clinics.
Hospital Charity Care/Bad
Debts. Hospitals with 501(c)(3) status are required to establish written
financial assistance policies under Affordable Care Act sections 501(r).
As a consequence, there is a cleaner distinction between genuine charity
care and bad debts than there was in the past when
hospitals adopted very disparate practices about how to treat situations where
a patient was not expected to pay (charity care) versus not able to pay (bad
debt).
Let me concede that there is only limited evidence that hospitals engage in
what's called "dynamic cost shifting." That is, if a hospital's
uncompensated care burden rises by $1 million, only some, not all, of that
amount can be expected to be recovered by the hospital's increasing charges to
privately insured patients to make up the difference.
That said, hospitals can and do exercise market
power, meaning they are able to charge private patients a higher rate than
Medicare or Medicaid patients. This practice results in profits from private
patients that then are used by the hospital in various ways, including the
provision of charitable care.
The point being that if the federal government
eliminated whatever payments it now makes for undocumented immigrants,
hospitals hypothetically would not respond by increasing charges to recover
part of their increased uncompensated care costs, but instead make
adjustments in the form of either spending less on other things or taking steps
to discourage undocumented immigrants from showing up at their doors.
Conversely, if federal, state or local governments were to make hospitals
entirely whole regarding their uncompensated care losses to undocumented
immigrants, this would not necessarily benefit hospital patients in the form of
lower charges. For these reasons, it is not altogether obvious that these
hospital uncompensated care losses are a problem that can be solved by better
public policy. Nevertheless they manifestly are a public policy issue from the
standpoint of patients concerned about high health costs.
Physician Charity Care. The $1.5
billion in physician charity care represent an average of $1,750 for each of
the country's 855,000 active
physicians. According to Medscape's Physician Compensation Report for
2017, the average physician makes $294,000 a year. Even generously assuming a
60 hour workweek, that's roughly $100 hourly meaning the average physician
devotes 17.5 hours a year to charity care for undocumented immigrants
(less if we assume a higher hourly rate).
Note that physicians, receive no tax benefits
for providing charity care; that is, they cannot write off the cost of
charity care from their personal or business taxes. Consequently,
although physician charity care is an important component of the
uncompensated care landscape, in my view, these voluntary donations of time--a
longstanding worthy tradition in American medicine--do not pose a public policy
concern.
Other Federal Subsidies
Benefiting Undocumented
Although it presumably did not arise by a
deliberate intent to benefit undocumented immigrants, current tax policy likely
confers an additional $6.6 billion in additional benefits
financed by U.S. taxpayers.
Immigrants. The
tax exemption for nonprofit hospitals (and any other nonprofit health
facilities) benefits undocumented immigrants regardless of their insurance
status. The employer tax exclusion benefits undocumented immigrants who happen
to receive employer-provided health benefits.
Tax Exemption. The
value of the nonprofit tax exemption to U.S. nonprofit hospitals in 2011
was $24.6 billion, including
forgone taxes, public charitable contributions, and the value of tax-exempt
bond financing. Assuming that 11.3 million undocumented immigrants receive a
pro rata share of this benefit, they receive roughly $0.9 billion in
additional federal subsidies for their hospital care. I could locate
no parallel figures for other nonprofit health facilities.
Employer Tax Exclusion.
Estimating the size of these tax benefits for undocumented immigrants is of
necessity extremely rough. I could locate no reliable information on the wage
distribution of such immigrants, especially among those who obtain
employer-provided health benefits. According to Kaiser
Family Foundation, "nonelderly lawfully present and undocumented
immigrants are as likely as nonelderly citizens are to live in a family with at
least one full-time worker, but they are more likely than citizens are to be
low-income, since they often work in low-wage jobs." More concretely,
nearly half (48%) of undocumented immigrants live in low income families below
200% of the federal poverty level.
That said, as shown earlier, we know that only
3.9 million of undocumented immigrants are uninsured, leaving 7.7 million with
some sort of coverage. No good data exist on what fraction of these obtain
non-group health coverage, but Kaiser Family Foundation’s Larry
Levitt has said via Twitter
that “some are buying non-group, but I’d agree that it’s primarily employer
coverage.” Assuming that 86% have employer-provided coverage (which is
the identical percentage among all non-elderly adults having private coverage
in 2016: Table HIC-2), this would
equal 6.6 million undocumented workers with such coverage.
And even if we conservatively assume that such
workers obtain the least expensive form of coverage (high deductible health
plan with savings option) in an industry most likely to employ such workers
(agriculture/mining/construction), the single premium in 2017 would be $5,666(compared to
$6,690 across all plans/industries). If we further conservatively assume all
undocumented workers pay no income taxes and are only liable for payroll taxes,
the tax subsidy amounts to 15.3% ($866 per worker) or $5.7 billion for
all undocumented immigrants with such coverage.
Conclusion
When we sum all the figures, including $11.9
billion for the uninsured and another $6.6 billion in tax subsidies, we arrive
at a grand total of $18.5 billion in subsidized health care
for all undocumented immigrants in 2016. This amounts to $57 per U.S. resident.
The share that concerns me the most--$11.2 billion borne by federal
taxpayers--amounts to $34 per U.S. resident. Admittedly, one could argue
that since the amounts at stake are so small, this is not an issue worth
fighting about. However, it is precisely that sort of thinking that has led us
to today's dismal reality that unfunded liabilities facing Uncle Sam now are
roughly $200 trillion and
rising.
So even though the dollar stakes are quite
small in a federal budget that will spend $4 trillion in the
fiscal year that just started, I believe citizens and federal policymakers
should stop pressing the Easy button and seriously ponder four important
principled arguments against federal tax financing of health care for
undocumented immigrants:
·
Federal funding is unnecessary
·
Federal funding is inefficient
·
Federal funding is unconstitutional
·
Federal funding is immoral
I will elaborate on these arguments in a
subsequent post.
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Footnotes
[1] Mr. Gorenstein's report was filed
earlier this month here.
[2] As detailed by Kaiser Family Foundation (footnote 9), "To
qualify as a DSH hospital a hospital must meet two minimum qualifying criteria.
The first criterion is that the hospital has at least two obstetricians who
have staff privileges at the hospital and who have agreed to provide obstetric
services to Medicaid patients (except when the hospital predominantly serves
children under 18 years or the hospital does not offer obstetric services to
the general public). The second criterion is that the hospital has a Medicaid
inpatient utilization rate (MIUR) of at least 1 percent. A hospital is deemed
as a DSH if the hospital’s MIUR is at least one standard deviation above the
mean MIUR in the state, or if the hospital’s low-income utilization rate
exceeds 25 percent."
[3] The lowest wage earners may be exempt from
income taxes, but nevertheless have to pay a combined 15.3% in payroll taxes
for Social Security and Medicare; hence the exclusion of these taxes is roughly
equivalent to a 15% subsidy from Uncle Sam.
READ CHRIS’ BOOK, The American Health Economy
Illustrated (AEI Press, 2012), available at Amazon and other
major retailers or as a pdf at AEI. With
generous support from the National Research Initiative at the American
Enterprise Institute, an online version complete
with downloadable Powerpoint slides and companion spreadsheets has been made
available through the Medical Industry Institute’s
Open Education Hub at the University of Minnesota.
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