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Inadequate Government Reimbursements Shift $88B In Health Costs To Employers, Private Insurers

Ruzanna Harutyunyan's picture

Medicare and Medicaid underpay hospitals and physicians by $88.8 billion annually, forcing providers to charge private insurers more for their service and in turn driving up premium costs for employers and workers, according to a study sponsored by hospital and insurer groups, Bloomberg reports (Goldstein, Bloomberg, 12/9). The study was commissioned by America's Health Insurance Plans, the American Hospital Association and the BlueCross BlueShield Association (CongressDaily, 12/9).

The study, conducted by Milliman, found that higher costs charged by providers to commercial insurers increased average premiums by 10.6%, or $1,512, for a family of four, of which employers paid $1,115 and workers paid $397 (Reichard, CQ HealthBeat, 12/9). The study also found that hospitals in 2006 recorded margins of 23.1% for privately insured patients, compared with a loss of 10.8% for Medicare and Medicaid patients. In 1996, hospitals earned 14.1% from commercially insured patients and 0.2% from publicly insured patients, Milliman actuary John Pickering said (Bloomberg, 12/9).

Milliman said eliminating the payment inequalities would reduce medical expenses for people with private insurance by 15%, assuming no change in total revenue for providers (Bloomberg, 12/9). The study said that Congress could correct the problem by increasing funding to Medicare and Medicaid by $90 billion annually (CQ HealthBeat, 12/9). However, the study's sponsors "shied away from a full-throated plea" to raise spending by that amount. "Our first major objective is to make sure there aren't major cuts in these programs," AHA President Richard Umbdenstock said (CQ HealthBeat, 12/9).

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The study's findings were endorsed by the U.S. Chamber of Commerce, which said President-elect Barack Obama's administration must address the underfunding as part of its efforts to overhaul the health care system (Bloomberg, 12/9).


AHIP President and CEO Karen Ignagni said, "This study quantifies the 'hidden tax' that cost-shifting imposes on families and employers across the nation," adding, "As Congress and the new administration focus on health care reform, they should confront this issue" (CongressDaily, 12/9). Umbdenstock in a statement said, "Cost-shifting raises premiums to all, forcing employers to cut back on coverage and ultimately contributes to the rising numbers of uninsured." BCBS CEO Scott Serota said that the solution "is not as simple as having the government pay more," noting that emphasis should be placed on linking payments to medical outcomes.

Health Care for America Now, a coalition of labor unions and activist groups, said insurers are simply placing blame for their own "bad practices and greed" on the efficiencies of the public programs. HCAN national campaign manager Richard Kirsch in a statement said, "Everyone agrees that we need cost controls, but when Medicare does a good job, insurers and hospitals complain," adding, "They're unwilling to compete on price and quality. They refuse to tell us what they charge and how much it actually costs to provide services" (Bloomberg, 12/9).

Reprinted with permission from kaisernetwork.org. You can view the entire Kaiser Daily Health Policy Report, search the archives, and sign up for email delivery at kaisernetwork.org/email . The Kaiser Daily Health Policy Report is published for kaisernetwork.org, a free service of The Henry J. Kaiser Family Foundation. © 2007 Advisory Board Company and Kaiser Family Foundation. All rights reserved.