Shifting costs from public to private payers

The other day, the American Hospital Association, the Blue Cross /
Blue Shield Association, Premera Blue Cross and America’s Health
Insurance Plans (FYI – HPHC is a member and I’m on the Board of
AHIP) released a joint study on public and private payment rates. 

study was prepared by Milliman, Inc., one of the nation’s most well
known number-crunching health care consulting firms. Readers of
this blog will not be surprised to learn that the study shows that
Medicare and Medicaid pay a lot less for health care services than the
Blue Cross and private health plans pay.  But I must say, even I was
a little surprised by the size of the differential.


The Milliman data
– which is actually 2006 for hospitals and 2007 for physicians –
which means IT’S WORSE NOW – calculates a $90 BILLION cost shift from
the public payors and onto the private plans. More
specifically, Milliman indicates the cost shift is worth a $51 billion
differential in hospital payments, and a $40 billion differential in
payments to physicians.

Calculating hospital operating margins actually draws a starker picture. Hospitals collectively lose $30 billion on Medicare and
Medicaid and earn $66 billion on commercial business, thereby
generating a $36 billion gain overall on their insured patients.  They
lose another $13 billion on their uninsured patients, netting out to a
$24 billion – or 3.6% – operating margin.

This means private sector employers and their employees and families
are paying as much as 10-11% more than they would otherwise pay for
health insurance – to fund the provider operating deficit created by
Medicare and Medicaid.

Let’s hope this issue gets the airing it deserves as the discussion
about health care reform moves forward in Washington, DC.  I’m as a big
a fan as the next guy about doing something to reform the way we pay
for and manage health care in this country, but I think it’s important
to remember that, for now, the private plans are carrying a lot of
water for Medicare and Medicaid – and not the other way around.

The press release announcing the findings from the study can be found here.  And the full Milliman report is available here

Charlie Baker is the president and CEO of Harvard Pilgrim Health
. This post first appeared on his blog, Lets Talk Health Care.