The financial health of Maine’s hospitals has landed at the center of State House debate this spring as lawmakers tussle over whether Maine should expand its Medicaid program under the federal health care reform law.

The issue came to a fore this past week as debate erupted over a Democratic plan to tie Medicaid expansion to the repayment of Maine’s $484 million hospital debt, which accrued as the state fell behind on reimbursing hospitals for services they provided to patients covered by Medicaid.

Democratic supporters of Medicaid expansion say growing the public, low-income health insurance program can address a key financial concern for hospitals: growth in the amount of care they must provide for free to uninsured people with no ability to pay.

Meanwhile, Gov. Paul LePage’s administration and Republicans have argued that Maine should learn from past moves extending Medicaid coverage to new categories of low-income residents. Since those previous expansions took effect, they say, the amount of free care provided by Maine hospitals has continued to grow.

The amount of free care, or charity care, provided by Maine’s hospitals has grown quickly in recent years. The trend has been driven by a slow economy in which employees have lost jobs and thus their health insurance; changes in the private insurance market that have made high-deductible plans more common; and decisions by many of Maine’s hospitals over the past decade to provide free care to higher-income patients.

More care for free

In 2011, the state’s 39 hospitals provided free care that amounted to $196 million. That’s about 4 1/2 times the amount of free care that was on the hospitals’ books in 2000, according to the Maine Hospital Association.

On average, the amount of free care provided by Maine hospitals grew 15.7 percent a year between 2001 and 2009, compared with 7.3 percent average annual growth in total health care spending in Maine. Free care accounted for most of the growth in hospitals’ uncompensated care, a category that combines free care and bad debts that hospitals have billed but have been unable to collect.

Free care also has grown as a percentage of hospital revenues. It amounted to 1.5 percent of gross patient service revenues at Maine’s 39 hospitals in 2005, according to an analysis of figures collected by the Maine Health Data Organization. In 2011, free care was worth nearly 2.6 percent of gross revenues.

Under Maine law, hospitals must provide care for free to anyone who needs treatment, earns up to 150 percent of the federal poverty level ( $23,265 for a two-person household), and has no way to pay the bill.

Hospitals commonly provide free care to those with no health insurance, but the uninsured don’t account for all free care Maine hospitals provide, said Derrick Hollings, chief financial officer of Eastern Maine Healthcare Systems, the parent organization for seven hospitals including Bangor’s Eastern Maine Medical Center.

Even some low-income Maine residents with health insurance qualify for free care when they meet the income guidelines and their insurer requires they pay a large portion of the bill out of pocket.

“If they are willing to pay for part of their care — they’re working, they don’t want a free ride, they’d like to pay for as much of the care as they possibly can — we would accept that partial payment,” Hollings said. “The other part of that, the cost of it, would be recorded as free care.”

The figure that hospitals list as free care is the “sticker price” that hospitals bill but few consumers actually pay because private insurers, Medicare and Medicaid all reimburse hospitals at lower rates.

Maine and Medicaid expansion

Between 1998 and 2005, Maine expanded Medicaid four times to different categories of low-income residents: children, parents and nondisabled adults without children.

Coverage expanded in 1998 to children from families with incomes up to 200 percent of the poverty level ($47,100 for a family of four); they were previously covered up to 133 percent of the poverty level. In 2000, parents earning up to 150 percent of the poverty level, up from 100 percent, started to qualify for coverage. In 2005, the threshold for parents grew to 200 percent of the poverty level. (Today, it’s 133 percent.)

And in October 2002, Medicaid expanded to cover adults without children who fell below 100 percent of the poverty level, which today amounts to $11,490 for a single person.

Medicaid coverage for residents younger than 65 grew 43 percent between 2002 and 2010, to 291,000 from 203,000, according to the Legislature’s nonpartisan Office of Policy and Legal Analysis. Today, Medicaid covers 18 percent of Maine’s adult population, the third highest level in the United States, according to the Kaiser Family Foundation.

Charitability, slow economy, high deductibles

An expansion of Medicaid coverage was pitched as a way to rein in the amount of free care hospitals had to provide, but the amount of free care grew throughout most of the period while Medicaid was expanding in Maine.

Free care figures for Maine hospitals increased every year between 2000 and 2011 except for one. They dropped 9.8 percent between 2002 and 2003, to $60.5 million from $67.1 million, according to the Maine Hospital Association.

That drop took place as the expansion of Medicaid coverage to adults without children was taking effect. Between 2002 and 2003, nearly 13,400 childless adults gained Medicaid coverage, according to the Legislature’s Office of Policy and Legal Analysis.

The free care drop, however, wasn’t sustained. A change in hospitals’ free care policies after Maine expanded Medicaid coverage explains part of the rise, said Jeff Austin, vice president of government relations for the Maine Hospital Association.

While state law requires that hospitals provide free care to those earning up to 150 percent of the poverty level, many voluntarily agreed to increase their free-care thresholds after Medicaid coverage expanded as they anticipated more Medicaid revenue, Austin said.

In March 2008, 24 of Maine’s 39 hospitals provided free care to those earning up to 200 percent of the poverty level, according to the hospital association. Just seven hospitals kept their free care policies at the state minimum. Some hospitals, like those in the Eastern Maine Healthcare Systems, provide partial free care to some patients who pass the 200 percent threshold, said Hollings, the Eastern Maine finance chief.

In addition, the growth in Maine’s Medicaid enrollment hasn’t been steady. Enrollment for adults without children was capped after more people than anticipated enrolled and costs exceeded projections. In 2007, 20,000 childless adults earning up to 100 percent of the poverty level had Medicaid coverage; today, about 10,500 do, and the program isn’t accepting new enrollments.

Hollings said the other factors driving an increase in free care are job losses and changes in the private insurance market. Some 58 percent of Maine adults receive insurance coverage through their employer, according to the Kaiser Family Foundation.

“So, if you lose your job, you lose your health insurance,” Hollings said.

In addition, the private health insurance market since 2001 has become dominated by plans that impose high deductibles and co-pays as a way to drive down premiums. Those plans are especially common for individuals purchasing their own coverage, but many employers have also switched to higher-deductible plans in which employees pay a greater portion of their costs.

“Essentially, you have people who choose high-deductible insurance plans and, when they get sick, they can’t afford to pay the deductible,” Hollings said.

If those patients meet the free-care eligibility guidelines, the portion not covered by the insurer is booked as free care. If the patients aren’t eligible for free care, the portion they can’t pay becomes bad debt.

Maine’s choice

If Maine opts to participate in the Affordable Care Act’s Medicaid expansion, more than 50,000 adults — mostly adults without children — would gain coverage, according to the Legislature’s nonpartisan Office of Fiscal and Program Review. In addition, about 25,000 childless adults and parents would be able to maintain their Medicaid coverage.

Hollings projects the Eastern Maine Healthcare Systems hospitals will have to provide less free care if Maine expands Medicaid coverage. A state-by-state analysis released by the Kaiser Family Foundation last year projected Maine hospitals would receive $348 million more in Medicaid payments over the next decade if the state expands the insurance program. The analysis also projects nationwide drops in the amount of free care.

But free care won’t disappear, he said.

“Under the Affordable Care Act, not everyone who is uninsured will be covered,” Hollings said. “There will still be those who will require some form of free care.”

Matthew Stone is a reporter in the BDN’s State House bureau.