Reinsuring the Insurers of Last Resort
By providing care for patients who lack health insurance, hospitals serve as "insurers of last resort" in the U.S. social safety net for healthcare. This exposes hospitals to financial risk based on the demographics of their communities. Through a variety of public programs, state and federal governments provide supplemental payments to traditional Medicare and Medicaid programs that may smooth hospital incomes. We find that these payments substantially reduce but do not eliminate the volatility of hospital profits. Thus, government serves as the "reinsurer of last resort."
David Dranove, Craig Garthwaite, Christopher Ody
Dranove, David, Craig Garthwaite, and Christopher Ody. 2022. Reinsuring the Insurers of Last Resort.