2006 June 03 Saturday
Medical Cost Shifting Onto Privately Insured Rises

In Washington State a substantial fraction of private medical insurance costs are due to cost shifting from the uninsured and from underfunded government paid care.

Mountlake Terrace, WA. (May 31, 2006) – On top of their own employees' growing healthcare costs, Washington employers paid more than $1 billion in 2004 to cover shortfalls incurred by hospitals and physicians serving Medicare and Medicaid patients, according to an analysis released today by Premera Blue Cross.

“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.”

In 2004, this hidden tax cost Washington employers an average of $902 per family health insurance contract -- 13 percent of all commercial hospital and physician costs.

Nearly a third of medical insurance price increases comes from cost shifting.

Premera estimates that Medicare and Medicaid cost-shifting, not employees’ medical care, accounted for 29.9 percent of the increase in employee hospital costs paid by Washington employers in 2004.

“This growing trend has serious implications for the affordability of private insurance, and employee wages,” said Steve Leahy, president of the Greater Seattle Chamber of Commerce, which employs about 32 people and represents 2500 businesses in the Puget Sound area. “We simply cannot sustain this cost-shift without serious long-term repercussions.”

If you are an employee who gets medical insurance from your employer you see some of this cost shifting in the form of rising deductibles and a reduced set of covered conditions. But some of the costs come in the form of smaller salary increases. These are all forms of hidden taxes. Governments require hospitals and other health care providers to provide care and then make you pay for it.

This trend is being driven by a few factors:

  • An aging population.
  • A rising fraction of lower IQ and lower income workers and their dependents driven mostly by immigration but also by reproduction patterns.
  • Advances in medical technologies that make more treatments possible.
  • International trade's driving down wages and benefits for lower skilled workers.
  • A corrupt political class willing to pretend to cut costs while it really just shifts them.

The cost shifting feeds on itself. As medical insurance costs rise in reaction to cost shifting more people go without medical insurance. Therefore their medical care ends up showing up as costs for those still insured, raising rates still higher, and driving still more off of paid private medical insurance. Could this trend progress so far that purchase of medical insurance becomes rare? Health care costs have already reached 16% of GDP and continue to rise much faster than overall inflation. Medical costs are projected to reach 18.7% of the US economy by 2014.

The analysis was done by an actuarial firm.

Premera commissioned the May 2006 report, titled Payment Level Comparison between Public Programs and Commercial Health Plans for Washington State Hospitals and Physicians, from Milliman Inc., an internationally recognized consulting and actuarial firm.

The analysis shows that employers have faced increasing impact from government program hospital losses since 1997 when hospital profit margins on Medicare business began declining.

Washington patient related hospital margins on Medicare business fell from a 2.9 percent gain in 1997 to a 15.4 percent loss in 2004. During the same period, Washington hospitals increased their profit margins on the commercial (employer-provided) segment of their business from just over 5 percent to 16.4 percent.

Economic analyses of the long term viability of Medicare and Medicaid paint an overly rosy picture. Costs of these programs have been reduced by cost shfiting in recent years. But while governments can manage to do some cost shifting they will reach a point where the shifting does not work any more. Too many people will abandon private insurance. Some will travel abroad to receive medical care from facilities that do not have to accept underpaying patients.

In 2004, Washington hospitals lost $622 million for care delivered to patients with Medicare and Medicaid coverage. In contrast, the same hospitals earned $845 million for care delivered to patients with employer-provided health care coverage. The overall patient-related gain for Washington hospitals was $222 million, or about 2.4 percent.

Washington physicians experience a significant payment gap between Medicare/Medicaid and private sector patient care as well.

According to the Milliman study, Medicare pays physicians 20 to 26 percent less than commercial insurers in King County, and 25 to 31 percent less elsewhere in the state. Medicaid pays 31 to 36 percent less than commercial insurers for children's office visits; 50 to 54 percent less for adult office visits; 11 to 18 percent less for maternity services; and 55 to 58 percent less for other medical services.

In all, Premera estimates nearly $1.4 billion in medical care costs -- $738 million in hospital costs and $620 million in physician costs -- were shifted to Washington employers and other commercial customers in 2004 as physicians and hospitals charged higher commercial rates to offset payment shortfalls from Medicaid and Medicare.

What is scary about this situation is that it is a trend and the trend looks set to continue for decades to come. The aging and dumbing down of the population will both continue. The aged and lower classes will vote for making the productive pay more.

You can read the full report: Payment Level Comparison Between Public Programs and Commercial Health Plans for Washington State Hospitals and Physicians" (PDF).

A previous study I linked to reported that costs of the medically uninsured per insured family will rise to about $1500 per year by 2010. It will get even worse further out. Immigration of the low IQ, low skilled, and low income will make the rate of uninsurance and underinsurance cost shifting rise even as governments spend more on health care. Hispanics are medically uninsured at two and a half times the rate of whites (Open Borders libertarians are promoting the growth of big government and inefficient markets - ideology trumps empirical evidence). A few years ago one year of illegal alien health care costs would pay for a border barrier. Since the medical costs continue to rise we could build a barrier and fund extensive efforts to deport the illegals for less than what we spend on their medical care.

About one third of all immigrants are uninsured. Why not require all employers of immigrants on H1-B visas and other permits to provide medical insurance for all immigrants and their families? Why not require immigrants who want to bring in their relatives to pay for medical insurance for the relatives? How about upping the fines on employers of illegal immigrants so that the fines can pay for some of the costs generated by illegals? Shift the costs onto the people who generate the costs.

America is well on the road toward becoming a declining superpower. In the face of rising problems our political class is willing to make the problems even worse. Witness the US Senate passage of the absolutely terrible CIRA legislation to greatly boost immigration. Our Iraq Debacle may come to be seen as the point of overreach where the US political class became totally unhinged and irresponsible.

Share |      By Randall Parker at 2006 June 03 12:44 PM  Economics Health

John S Bolton said at June 4, 2006 1:53 AM:

There is clearly a huge problem here which is being swept under the rug by traitorous irresponsibility.
Anyone who walks into America has just grabbed for himself a medical coverage worth over $3,000/year, in implicit premiums payed by someone else.
Medical expenses per person are now ~$6,000/year. Over 65's get ~half of this, which leaves the under 65's taking $3,000/year in coverage, regardless of how little they pay in taxes.
Dishonest politicians and others are pretending that immigrants are net taxpayers; adding not taking from our system.
With median personal incomes 30+% below the total median of ~24k, as Borjas has reported, which is to say: 16k, the taxes of median foreign born incomes do not even cover their medical coverage.
The effrontery of these hostiles, who are capable of just walking in illegally, and demanding dialysis at $50,000 cost/year, should cause everyone to realize what an unprecedented, warlike situation immigration has become.
That officials are not at all fazed by this, shows that they must relish the increase of conflict in our society.
They must see their function as being to not solve or ameliorate problems, but to worsen them as much as can be gotten away with.
This would explain why, when one outrage of this sort is accepted by the right, the left immediately ups its demands.

Kenelm Digby said at June 4, 2006 5:08 AM:

Further To John Bolton's comments,the economics of the mass immigration (as encouraged by the political class), are the economics of the Mad-House, and are a mathematical certainty to bankrupt any society stupid enough to pursue them.Any private corporation pursuing these crazy policies would be bankrupted very quickly.
I was always under the impression that the renaissaince of neo-classical economic theory in the 1970s, associated with the name Milton Friedman, swept away a lot of the loose thought garbage that held sway in the early 70s and 60s, namely the fact that governments somehow could "create" wealth out of the thin air.Naively, I thought that this nonsense had been well and truly buried for the idiocy that its, but unfortunately, I'm wrong.

John S Bolton said at June 4, 2006 11:32 PM:

There's no way 'economic thought' which argues for the aggrandizement of power for officials will be swept away by anything short of privatization of the government schools. How can a 'marketplace of ideas' function in an archipelago of welfare projects? One could notice the price that the libertarian academics must pay to operate in the leftist environment. They have to be for free immigration of hostiles, up to and beyond the point of civil war. They have to respect anarchism, which they themselves quite often believe in, under such names as 'competing governments'.
They may not mention the duty of officials to be loyal to the citizen over against the foreigner.
They may not mention that the foreign 'workers' are living beings with medical needs, which become a traitorous charge on the net taxpayer.

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