Employers Charged More For Health Care Due To Low Medicare and Medicaid Payments
Medical providers levy higher charges on private insurers to compensate for low Medicare and Medicaid reimbursement rates, adding a cost burden of more than $900 per private family plan per year, according to a study conducted by Milliman Consultants and Actuaries for Seattle-based Premera Blue Cross.
Researchers analyzed Washington State hospital financial statements and physician fee schedules from 1995 to 2004. Results showed that, in 2004, commercial payers generated 56% of net patient service revenue reported by hospitals, but accounted for only 48% of hospital expenses. Meanwhile, Medicare and Medicaid generated 43% of hospital revenue, but represented 52% of hospital expenses.
In aggregate, the analysis showed, hospitals had a -15.4% margin on Medicare business, a -15.6% margin on Medicaid business, and a 16.4% margin on commercial business. If each segment had supplied revenue in proportion to expenses, according to the analysis, Medicare and Medicaid would have paid an additional $510 million and $227 million, respectively, but commercial insurers would have paid $738 million less than the actual figures.
For Washington hospitals to maintain the aggregate 2.4% net revenue margin they reported for 2004, Medicare and Medicaid payments would have to rise by 18.2% and 18.5%, respectively, but payments by private insurers could fall by 14.3%, according to the study.
The additional levies on private insurers amounted to 13% of all commercial hospital and physician costs, adding $902 to the cost of each private family health insurance contract in 2004. Cost-shifting attributable to underpayments by Medicare and Medicaid accounted for 29.9% of the increase in hospital costs paid by Washington employers, the study concluded.
"Some call it Medicare and Medicaid cost-shifting; others call it a hidden tax,"said Gubby Barlow, Premera CEO. "By any name, it’s a billion-dollar burden for Washington employers and policyholders, and that burden is growing every year. It threatens to undermine efforts by employers, employees and health care providers to moderate the growing costs of medical care."
Other research across the country has produced similar results. A comparable study in California, also conducted by Milliman Consultants, found that private insurers were charged an additional $738 billion for hospital care in 2004 to compensate for Medicare and Medicaid underpayments. This study did not account for physician charges. According to Kenneth E. Thorpe, a health care economist at Emory University, unpaid hospital bills across the nation, a majority of which are for the underinsured, cost around $45 billion annually, adding around 8.5% to the cost of health insurance for those who do pay their bills.
