The inequities of the U.S. government healthcare payment system have created a hidden tax that's paid by people and employers who have private healthcare insurance. That's the assessment made in a new report backed by a group led by the American Hospital Association (AHA; Chicago).
"Medicare and Medicaid are paying less than the cost of caring for beneficiaries of those programs," Caroline Steinberg, AHA's VP of trends analysis, told Medical Device Daily. "For every dollar that's paid to a doctor or facility, Medicare and Medicaid are paying less. You can't run a hospital unless you can have a little margin or at least break even. When Medicare and Medicaid fail to pay their share, the private sector has to pick up the difference."
As a new administration moves into Washington, the AHA-led task force that produced this report is highlighting the standing inequities to see them reduced, but also to avoid any additional potential burden on Americans and their employers who receive healthcare via private insurance.
"Commercial payers subsidize the cost of Medicare and Medicaid essentially through a hidden tax," Steinberg said. "Medicare and Medicaid patients pay less than what it costs for their care."
The study was prepared by the Milliman (Seattle) actuarial/consulting firm for the AHA, along with America's Health Insurance Plans, the Blue Cross Blue Shield Association (both Washington) and Premera Blue Cross (Spokane, Washington).
The comparison of hospital and physician payment levels among Medicare, Medicaid and commercial payers shows that, in many areas, public programs pay providers significantly lower rates than do commercial health plans.
Nationwide, this discrepancy has widened in recent years, as Medicare and Medicaid hospital payments have not kept up with costs and physician payment levels have remained flat.
"The payment rate differential can be thought of as a cost shift from the public programs to commercial payers," according to the report. "That is, if Medicare and Medicaid paid higher rates, commercial payers could pay lower rates with healthcare providers still achieving the same overall reimbursement. As it is, commercial payers subsidize the cost of Medicare and Medicaid, essentially through a hidden tax. The hidden nature of this subsidy makes it difficult to quantify and debate. With this study quantifying the cost shift, we hope to further the public discussion."
Medicare and Medicaid rates are set by Congress, whereas private insurers negotiate payment rates.
"A hospital has to build shortfall into the rates to have a positive bottom line," Steinberg said. "They project what Medicare and Medicaid are going to pay, then when they do negotiations with plans, they build it into the price.
"It's the cost of doing business in the healthcare field," she added. "It's almost like a surtax."
The report estimates that the total annual cost shift in the U.S. from Medicare and Medicaid to commercial payers is about $88.8 billion.
"When broken down, we estimate the cost shift adds $1,512 annually, or 10.6%, to the premium of a family of four. Of this cost shift amount, we estimate employers pay $1,115 and subscribers $397 annually. The cost shift also increases member cost sharing by approximately $276 annually," according to the report.
The fact that healthcare costs are out of control and inequitable isn't new, but given the economic downturn, Steinberg's group is concerned that it could grow worse.
"A lot of people are looking at government expenditures," she said. "There are a lot of things the federal government wants to do even though they have a deficit. We just wanted to put it on the table now, that it's not the time to make more cuts or shift additional costs to private businesses.
"As you look forward to a potential for healthcare reform, it's critically important that the information is on the table about where the money is coming from and where it's going to support healthcare," she said. "There are a lot of calls to expand public programs, but if you do that and they don't pay for services equitably you might not get the increased access to healthcare that's being sought."
Steinberg said her group not only wants to see fair payment for services, but also a full inflationary update for both Medicare and Medicaid.