Freudenheim has been the health care reporter at the NY Times for a long time — a quick Googling suggests 1993 was when he started. So letting this piece of propaganda from the health plans slip by him and writing an article about it called Low Payments by U.S. Raise Medical Bills Billions a Year is basically unforgivable. Especially after the article he wrote last week talking about delays in payments from payers, that completely ignored the huge lawsuits about the issue in the 1990s and again left his readers without most of the story.

The argument in today’s article is basically this. Evil Medicare and Medicaid pay hospitals and doctors so little that they are forced, forced I tell you, to bill private insurers more to make up the difference. We know that’s true because Millman & Robertson says so. (Those of you sniggering at the back of the class who thought that M&R’s job was to help insurers reduce their payments and spending obviously don’t understand….)

Except that halfway down the page the argument changes. Now it says, the huge unreimbursed cost of treating the uninsured is so great an extra burden on hospitals and doctors that they are forced, forced I tell you, to bill private insurers more to make up the difference.

The article then wraps with a grab-bag of quotes from random observers, none of whom suggest any solution to this and two of whom represent organizations (Employers and Health Plans) who have done their damnest over the years to scupper any solutions to the uninsurance problem that is now apparently just killing them. But let’s ignore that for now.

The one person who could have given Milt a good explanation was apparently not answering his phone. Uwe Reinhardt gave as good an explanation of this phenomenon as any at a 1994 HSR conference. The story is that sometimes costs go up faster in the public programs and sometimes they go up faster for private sector payers, but the difference between them is pretty minimal. At that conference Uwe put up a chart that I can’t find, but the data is in the table below (look at the bottom section which shows average annual increase in spending by source over time)

Essentially what this shows you is that in the 1970s public expenditure grew a bit faster than private sector spending (14% vs 12.0%), in the 1980s they grew at about the same rate (private grew slightly faster), in the 1990s public expenditure grew a bit faster than private again (5.9% vs 5.1%) and in 2000–20001 public spending grew even faster than private (9.4% versus 8.2%). Over time of course the overall share of public spending as a proportion of all spending has gone up, but not that much. Uwe’s explanation was that his friends in the insurance business told him that when public costs went up faster than private costs it showed how efficient the private sector was, and when it was the other way around, it showed that Medicare and Medicaid were cost shifting to the private sector!

Well, Freudenheim has bought that hook, line and sinker!

The truth is of course that providers will charge whomever they can whatever they can, and the balance of bargaining power providers hold over payers goes up and down (and in the last few years has been going up) with all payors across the board, while their ability to stick rate increases to different payors (public versus private) varies only slightly. But look again at the overall numbers, There’s never a time when the cost increases for private and public payers are radically different. If you read the NY Times article today you could be forgiven for thinking that Medicare is paying 20% less into the system and that the private side is paying 40% more.

It’s terrible to hear that the poor innocent health insurers have been forced, forced I tell you, to pay these huge extra amounts since the Medicare Balanced Budget Act of 1998 reduced Medicare payments. After all their huge profits of the 1990s have collapsed as they’ve been forced to absorb the extra costs, and the 2000s have been nothing but a sorry tale of woe as insurer after insurer has seen its profits and its stock price hurtle into the abyss, as you can clearly see from this chart

But from the Freudenheim article, the answer is obvious. We should just have Medicare and Medicare pay way more each year, and then the providers would charge everyone else much less! I wonder why CMS didn’t think of that? After all, far be it from health insurers to have to actually try to do something about reducing their clients costs when the solution is so obvious that a slap-dash M&R report identifies it for us.