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

48 Pages Posted: 6 Sep 2017 Last revised: 2 Jun 2023

See all articles by Jeffrey P. Clemens

Jeffrey P. Clemens

University of California, San Diego (UCSD) - Department of Economics; NBER

Benedic Ippolito

American Enterprise Institute (AEI)

Date Written: August 2017

Abstract

Hospital payment regulation has historically been introduced to meet multiple policy objectives. The primary objective of "all-payer" rate setting regimes 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 this secondary objective made states' all-payer regimes economically and legally unstable. Their economic instability reflected a feedback loop from surcharge rates to insurance coverage rates and back to the quantities of uncompensated care in need of being financed. The erosion of all-payer regimes' surcharge bases was particularly pronounced when health maintenance organizations were exempted from surcharge collections, creating a regulatory arbitrage opportunity. The economic and legal instability we highlight could largely have been avoided by financing the cost of uncompensated care provision through taxation of income or other standard revenue bases. These developments thus illustrate the wisdom of the Tinbergen Rule, which recommends that independent policy objectives be met with independent policy instruments.

Suggested Citation

Clemens, Jeffrey P. and Ippolito, Benedic, Uncompensated Care and the Collapse of Hospital Payment Regulation: An Illustration of the Tinbergen Rule (August 2017). NBER Working Paper No. w23758, Available at SSRN: https://ssrn.com/abstract=3031729

Jeffrey P. Clemens (Contact Author)

University of California, San Diego (UCSD) - Department of Economics ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States

HOME PAGE: http://econweb.ucsd.edu/~j1clemens/

NBER ( email )

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Cambridge, MA 02138
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Benedic Ippolito

American Enterprise Institute (AEI) ( email )

1150 17th Street, N.W.
Washington, DC 20036
United States

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