Thursday, July 15, 2010

Answer to question # 7: How Does Private Insurance Essentially Subsidizing Medicare and Medicaid Affect Working Americans?

A study published in 2006 using 1993-2001 data from California helps answer this question. (1)
1) California hospitals in general reflect those in the nation as a whole, but are more urban and with a higher percentage for-profit.
2) For each 10% decrease in Medicare and Medicaid payment there was a 1.7% and 0.37% increased cost to private payers respectively.
3) By 2001 hospital Medicare/Medicaid revenues were 9.77% below cost which caused a 1.66% increase in private payer costs.
4) These increases in private payer costs were $632,000/hospital/year totaling $210 million for the 311 general acute care hospitals.

The authors commented that reductions in Medicare/Medicaid payments to below cost could be addressed by hospitals in several different ways: lower staffing ratios, increases in efficiency, changes in service mix (emphasis on more costly procedures), less uncompensated care, lower profitability, and increased income from private insurance. All these mechanisms are used to varying degrees by different hospitals as government programs arbitrarily decrease payments.

But what does the average worker with a family of four pay for this cross-subsidization of government programs? This question was addressed by a 2008 study by the Milliman Consultants and Actuaries funded by the American Hospital Association, American Health Insurance Plans and two Blue Cross associations. (2)

Milliman examined national hospital and physician costs along with Medicare, Medicaid and private insurance payment data to calculate their results. Medicare and Medicaid paid 48.9 billion and 39.9 billion yearly less than and private insurance 88.8 billion more than the cost to offset the government programs underpayment. This amount raises private insurance costs for hospitals by 18% and doctors by 12%. The Milliman study calculated that for a family of four with private insurance cost-shifting increased their yearly health care premiums by 10.7% or $1,788. They reported that the employer paid $1,115 more and the family $673.

There is no question that our government must decrease its healthcare expenditures. The present method of arbitrarily decreasing reimbursement however, has not decreased expenditures and has caused cost-shifting to those with private insurance, in other-words a hidden tax that is decreasing the standard of living for working Americans. Cost-shifting has caused a detrimental sequence of events: private insurance becomes more expensive thus more companies and individuals drop their health insurance, many become uninsured and some become Medicaid patients, budgetary pressures lead to more decreases in government program payments thus causing more cost shifting, etc.

The prudent way to decrease expenditures for both governmental and private health insurance alike is to decrease health costs for both entities. This can be done by understanding and dealing with the reasons why we as a nation spend about $700 billion dollars/year (see question # 2) on non-beneficial inappropriate care. By doing the following we can decrease costs for both government and private insurance: Congressional amendments to the Patient Self Determination Act, The Americans with Disabilities Act, The Emergency Medical Treatment and Active Labor Act with the phrase, “within the bounds of good medical practice”, initiate the immediate availability of physician review to assure beneficial care, and create a Federal Health Care Bank to handle several administrative issues.
_______________________________
1. Zwanziger J and Bamezai A. Evidence of cost shifting in California hospitals. Health Affairs 2006; 25: 197-203 (PMID 16403754)
2. Available on http://www.ahip.org/content/default.aspy?docid=2516 and click on full report (accessed 7/7/2010)

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