By John Berry and Mick Raich
Many practices, hospitals and health systems are searching for answers to collecting their self-pay dollars, and with good reason. There has been a huge shift in self-pay financials over the last seven years. Most of our clients have seen their self-pay collection percentages go from 15-20 percent to less than 10 percent.
What is the cause behind this change, and why has self-pay not rebounded with the recent financial upturn touted by the government?
Perhaps the economy, specifically the unemployment rate, has not recovered as strongly as predicted.
As we examine this, we’ll first define what unemployment is in general terms; then, we can further peel the onion back and investigate what you may not know — differences in U-6 and U-3 unemployment reporting, and what that represents.
Once we explore unemployment’s academic definition, we can then focus on the professional implications for hospitals and medical practices, who should be utilizing the concepts of U-6 and U-3 unemployment in their business models.
What does unemployed actually mean?
Let’s define what most people think of as “unemployed” — being without work, whether that person is actively looking for work or not. When discussing unemployment, we often cite the unemployment rate, which is “a measure of the prevalence of unemployment and is calculated as a percentage by dividing the number of unemployed individuals by all individuals currently in the labor force.” 
That’s the generally accepted definition of unemployment. Let’s break it down further and look into the U.S. Bureau of Labor Statistics’ definition of unemployment, specifically what they call U-3 and U-6 unemployment.
U-6 includes two groups of people: 
First, U-6 includes “Marginally Attached Workers,” or more specifically, people who are not actively looking for work, or who have indicated they want a job and have looked for work in the past 12 months. This class also includes workers who have given up on finding a job because they feel they just can’t find one.
Sounds like the generally accepted definition of unemployment mentioned above, right?
Second, U-6 also includes people who are looking for full-time work but settle on a part-time job due to economic reasons or conditions. In other words, they want full-time work, but can’t find a suitable match like they had before.
Although technically “employed,” I think we can agree that these people are certainly “under-employed,” which is a close relative to our standard definition of unemployment — especially when you consider that people in this group may work as little as one hour per week. These people cannot actively contribute the economy at the same level they had previously.
So that’s U-6. What about U-3? After we define U-3 unemployment, it should be obvious which is the “real” number.
U-3 “occurs when people are without jobs and they have actively looked for work within the past four weeks.” 
Let’s examine that a little closer. Consider a person who loses their job due to a layoff. He looks for a new job for about a month, gets discouraged, and stops looking. This person is not considered “unemployed” according to the U-3 definition.
Or, in another example, a previously full-time employed worker is now taking the only part-time work she can find, maybe five hours per week. This person is not considered “unemployed” according to the official U-3 definition.
Which sounds more “real” to you? U-6, or U-3? If you’re thinking U-6, you’re not alone. However, U.S. government does not agree with you. U-3 is the official unemployment rate cited by the Bureau of Labor Statistics.
When you hear talk of an unemployment rate of 5, 6, or 7 percent, then, you might want to ask yourself, which rate is being talked about: U-6 unemployment or U-3 unemployment? Almost always it is U-3.
For additional confusion or clarification depending on your interpretation of the facts, and if the U-3/U-6 debate doesn’t confuse you enough, you can also review U-1, U-2, U-4, and U-5 unemployment definitions. Those subcategories are outside the scope of this paper, so we will leave it up to you to further educate yourself on the relevance of those other rates.
Now let’s ask, how does U-3 unemployment relate to U-6? Let’s take a look at the chart below, comparing of the official U.S. U-3 unemployment rate to the U-6 number. It’s interesting to say the least. The U-6 unemployment rate is always higher than the official U-3 number.
The latest U-3 unemployment rate (February 2015) is 5.5 percent, compared to rates of between 4 and 5 percent in 2006-2007. Today’s U-3 rate is just 1 point lower than the lowest U-6 rate since 1994, 6.8 percent, experienced in October 2000. 
As Tim McMahon explains on UnemploymentData.com, “… as times get more difficult, increasingly people give up looking for jobs. When the good times are rolling and jobs are plentiful, it is easy to get a job so even the causal applicant will have a job.”
He rightly asks, “Why do we have a U-3 number at all? Aren’t all U-6 people unemployed?” Again, he has a solid explanation: “… during bad times like the recent few years, it is scary to hear the unemployment rate is 18 percent (U-6), but less scary if the number you hear is ‘only’ 10.6 percent (U-3). So the government prefers the U-3 number and unfortunately the news media plays along …” 
Interesting, no doubt — and it creates a false sense of security for people and businesses who believe what is reported at face value.
Let’s look into this a little further. One can assume as one metric rises, so would the other. That proves true, but as seen in the graph, the gap between U-3 and U-6 unemployment increases as well, usually by a wide margin.
For example, the lowest period in unemployment on this chart, October 2000, sees the U-3 rate at 3.9 percent and the U-6 at 6.8 percent — a variance of only 2.9 percent.
Let’s look at this data in another way.
The chart above displays the U-6 rate, subtracted from the U-6 rate, for a look at the differential. According to McMahon, “When the differential is low, it is easier to find a job.” 
As you can see, the differential, although lower than its height, is pretty high now in 2015 — jobs are still difficult to find.
And, as individuals become frustrated trying to find gainful employment, they impact the economy in a negative way, by not spending earnest money on things like healthcare.
The impact of U-6 unemployment on your business
This relationship between U-3 and U-6 unemployment is a problem causing concern for medical providers and leaders in ancillary services. As individuals stop working, often their medical insurance stops as a result.
Fewer premiums paid, fewer office visits, fewer co-pays, all mean less money in the system for providers and insurance companies to work with. This drives up medical costs and reduces an insurance company’s ability to adjudicate reimbursement claims and remain profitable.
In addition, increases in self-pay relating to unemployment can be a benchmark for providers. Simply stated, as unemployment goes up, self-pay may go way up.
Moreover, consider the gap between U-3 and U-6 unemployment. If medical providers and hospitals believe that U-3 unemployment is the actual number, they may be surprised when more patients present as “self-pay,” and subsequently become delinquent payers, than they anticipated.
Looking at the U-6 number is more important when self-pay is in the mix, or is rising as a result of accounts receivable (AR) rising.
The problem a provider has, whether it is hospital or practice, is this: as self-pay increases, the chance a patient will not pay the bill increases. 
Even in the case of insured patients, when insurance does not pay the whole bill for whatever reason, or sends the bill off to collections, providers are forced to pursue the patient for payment or write off the cost of the services rendered, which plays into the AR equation and a whole set of other challenges.
In summary, when you review your financials at the end of the month and see your self-pay volume at 12 percent, yet you hear your unemployment for your area is at a new low of 7 percent, you now understand this discrepancy and how it affects your bottom line.
If you tie these real numbers into the fact the Obamacare exchange plans have large co-pays and deductibles, you may now know exactly why your income is going down in spite of the often-touted economic upturn and decrease in unemployment.
Self-pay, AR and U-3/U-6 unemployment considerations are real, and can cost providers money when they are not aware of the changes in reimbursement as it relates to the economic and political landscape. Vachette Pathology is in a unique position to sort through the rhetoric associated with these issues and help you maximize your revenue. We stay current with legislation and billing changes in the industry and provide insight and guidance to health systems, hospitals, and practices nationwide. Please contact us with questions at 866-407-0763 or 517-486-4262.