The Cost of Charitable Care: Resource Externalities and the Value of Insurance

With Xuelin Li, and Tong Liu

This paper studies the private and public costs of free and discounted care, motivated by its central role in the American healthcare safety net. Leveraging spillovers from insurance access expansions, we estimate the private cost of this charitable care and find that it crowds out insured care. We develop a model of hospital resource allocations and estimate it using detailed discharge and capacity data. The burden of charitable care reduces emergency care supply, where regulation limits hospitals' ability to discriminate among patients, but increases insured scheduled care. The cost of insuring otherwise charitable care is between two and seven times the benefit it offers recipients. However, over three-quarters of the value of expanding insurance accrues to non-recipients because of its effects on hospital resource allocation. This flips the welfare sign of insuring the uninsured, suggesting an optimal coverage of charitable care at rates comparable to Medicaid. We investigate alternative policies that set minimum requirements for non-profit hospitals and finance charitable care delivery through credit trade. We find a stark trade-off between policy targeting and fiscal spending driven by misalignment between where charitable care is needed and where non-profit tax exemptions are profitable.