21 states have opted not to expand Medicaid under the Affordable Care Act (ACA), arguing that the expansion would be too expensive. And since California had to convince taxpayers with a state government mandate to remain revenue neutral on the program, based on promises by Democrats in Washington, D.C., and are looking at an $80 million deficit the moment Federal subsidies expire, it seems like those 21 states are right.

But economists at Northwestern University and Columbia University’s Mailman School of Public Health argue that  the cost to hospitals from uncompensated care in those states roughly equals the cost of Medicaid expansion.

In a National Bureau of Economic Research working paper, they looked at  28 years of previously confidential, hospital-level financial data made available by the American Hospital Association and found that each uninsured person costs states’ hospitals about $900 in uncompensated care -- defined as the cost of hospital visits for which the uninsured don’t pay. In states that do not expand Medicaid, hospitals will provide $6.4 billion in uncompensated medical care. By comparison, the Kaiser Family Foundation has estimated that implementing the Affordable Care Act’s Medicaid expansion would cost these states about $6.25 billion.

“Our results make it very hard for a governor or other policymaker to claim that the Affordable Care Act’s Medicaid Expansion will cost their state ‘too much’ money,” said Craig Garthwaite, assistant professor of strategy at Northwestern’s Kellogg School of Management. “Hospitals in those states already spend more providing uncompensated care to uninsured that would be covered by the expansion than the state would spend on expanding Medicaid. Ignoring these costs doesn’t make them go away."

There is a reason the phrase "it's academic" is part of the lexicon and that economics is taken less seriously than science. Economists lose nothing making their own model and telling states to go ahead and defy the real money being lost.

The argument being used now was the argument manufactured against the old system - it was claimed that people did not have access to health care, but in this paper is it conceded that hospitals are the insurers of last resort and always have been. By law, they are required to care for patients with or without the means to pay. 

Most ironically, they worry that states without expanding Medicaid will lose profits for hospitals. And too much profit for hospitals, and the high cost of world-class treatment, were the argument for socializing more coverage. Now the argument is that more government would lead to more capitalism.

Approximately 5.2 million individuals in non-expanding states will not receive coverage under the ACA. While hospitals receive some compensation for uninsured care, mainly from Disproportionate Share payments, in practice, payments are much lower than the cost of uncompensated care provided by hospitals. In 2012, uncompensated care exceeded $46 billion, approximately 28 percent of Medicaid payments for inpatient and outpatient spending.

The economists claim that hospitals absorb between half and three-quarters of the costs from uncompensated care. Non-profit hospitals bear the burden of serving as insurers of last resort; for-profit hospitals are largely unaffected.

“Policymakers frequently assume that hospitals simply pass along the cost of uncompensated care by raising prices, but our evidence suggests that hospitals actually absorb most of the costs themselves through lower profits,” said Matt Notowidigdo, co-author, associate professor of economics in the Weinberg College of Arts and Sciences at Northwestern and a faculty fellow at the University’s Institute for Policy Research. “This is actually fairly intuitive to us. If hospitals could have raised profits by increasing prices for privately insured patients, we would have expected many hospitals to have already done so.”

Garthwaite said hospitals have become informal insurers as a result of deliberate policy decisions that leave a portion of the low-income population without health insurance and secondly, require hospitals to treat patients regardless of their ability to pay.