Low Medicare and Medicaid reimbursements to hospitals and physicians lead to significantly higher health insurance costs for consumers and employers, according to a study released by Milliman, Inc.
The report found that annual healthcare spending for an average family of four is $1,788 higher than it would be if Medicare, Medicaid and private employers paid hospitals and physicians similar rates, with total provider reimbursement unchanged.
"As businesses struggle to cut costs to match sagging revenues, employee health benefits are increasingly at risk," said Rich Umbdenstock, president and CEO of the American Hospital Association. "The faltering economy makes fair payment by Medicare and Medicaid more important than ever."
The continued underpayment of providers by public programs has devastating consequences for families and employers who are struggling to afford healthcare coverage, according to officials. These underpayments create a payment gap to hospitals and physicians that privately insured employers and consumers must close through a "cost shift" or "hidden tax."
The study found that cost shifting adds an estimated $1,512, or 10.6 percent, to the average premium for a family of four. Of that, the employers pay approximately $1,115. Families also pay an additional $276 more in co-insurance and deductibles due to the cost shift.
In 2006, the hospital cost shift was $34.8 billion for Medicare and $16.2 billion for Medicaid. In 2007, the physician cost shift was $14.1 billion for Medicare and $23.7 billion for Medicaid. Taken together, the estimated annual cost shift is $88.8 billion.
Data suggests that if there were no cost shift, hospital and physician costs for privately insured patients would be 15 percent lower.
Health plans have taken many actions to keep coverage affordable but are challenged by the growing cost of the subsidy that their customers provide to public programs.
"This new study shows that cost-shifting is driving up the costs of healthcare for all consumers," said Scott P. Serota, president and CEO of the Blue Cross and Blue Shield Association. "As our nation embarks on comprehensive healthcare reform - and we collectively strive to extend coverage to all, improve quality of care and keep healthcare affordable for future generations - cost-shifting is one of the areas where we should focus our attention."
Hospitals and physicians in some areas may not be able to offset low public payments with higher commercial payments, creating additional financial pressures. In addition to this hidden tax, the privately insured also must bear the costs associated with bad debt and charity care provided to individuals without insurance, which is not separately quantified in the report.
"As we consider approaches to expand coverage nationally, we need to keep in mind the disparity among Medicare, Medicaid and commercial provider payment rates and the pressure that this disparity places on hospitals, physicians and commercial payers," said John Pickering, principal and consulting actuary at Milliman, Inc., who co-authored the report with Will Fox, also a principal and consulting actuary at Milliman.