A study released in June by the California Foundation for Commerce and Education (CFCE) suggests a substantial factor driving up private health care costs is government underpayments to hospitals in the Medicare and Medi-Cal programs.
The study also suggests the impact on private payers of uncompensated care for the uninsured is minimal.
“The extent to which health care providers shift costs–increase the markup charged to private patients in response to other (public or uninsured) patient’s underpayments–is a key issue in health reform debates,” CFCE officials stated in a news release accompanying the study. “Evidence of cost shifting from Medicare or Medi-Cal is used to support increases in the programs’ reimbursement rates.”
The study concludes government efforts to reduce the number of uninsured will not significantly help reduce health insurance premiums. CFCE is a nonprofit organization affiliated with the California Chamber of Commerce.
Significant Shifting
The study–titled “Cost Shifting in California Hospitals: What Is the Effect on Private Payers?”–used public data on California hospitals from 2000 to 2005, obtained from the Office of Statewide Health Planning and Development.
Author Daniel P. Kessler, a professor at the Stanford University Graduate School of Business and a senior fellow at Stanford’s Hoover Institution, calculated how hospitals’ markups on Medicare, Medi-Cal, and indigent patients affect their markup on private-payer patients, as well as how hospitals’ markups on private-payer patients would fall if the revenues for Medicare, Medi-Cal, and indigent patients were increased to cover costs.
Kessler found cost shifting from Medicare and Medi-Cal was substantial and that cost shifting from the uninsured was minimal.
“If, in 2005, the revenues for every California hospital’s Medicare and Medi-Cal patients would have been sufficient to cover these patients’ costs, then private-payer patients’ revenue-to cost ratio would have declined by 10.8 percentage points, from 1.309 to 1.201,” Kessler wrote. “If, in 2005, the revenues for every California hospital’s indigent patients would have been sufficient to cover these patients’ costs, then private-payer patients’ revenue-to-cost ratio would have declined by 1.4 percentage points, from 1.309 to 1.295.
“State health policy reforms that seek to cover the currently uninsured are unlikely to lead to significant reductions in private insurance premiums, at least due to decreases in cost shifting,” Kessler concluded. “In contrast, increases in public-program reimbursement rates could have an economically important impact on premiums. … This is a direct result of the disproportionate share of hospital costs financed by these programs, and the fact that the programs have been bearing a declining share of their patients’ costs in California in the 2000s.”
Higher Costs
CFCE President Loren Kaye stated in the news release that although “there are many benefits from increased health care coverage for the uninsured, a significant reduction in private payer premiums is not one of them.”
Free-market analysts agree government underpayments shift costs to private payers. “Because the government does not cover the costs of Medicare and Medicaid patients fully, private insurers pay higher prices to doctors and hospitals,” explained John R. Graham, director of health care studies at the Pacific Research Institute, a free-market think tank in San Francisco. “These are then passed on to individuals and employers as higher health insurance premiums.
“If we reduced the size of government health programs, private health care would become more competitive, cost less, and [be] available to more Americans,” Graham said.
Dr. Sanjit Bagchi ([email protected]) writes from India.
For more information …
“Cost Shifting in California Hospitals: What Is the Effect on Private Payers?” by Daniel P. Kessler, issued on June 6, 2007 by the California Foundation for Commerce and Education, is available through PolicyBot™, The Heartland Institute’s free online research database. Point your Web browser to http://www.policybot.org and search for document #21714.
