Low Medicare and Medicaid Payments Cost Private Payers
U.S. employers and consumers are paying billions of extra dollars each year for medical care in hospitals and doctors' offices to offset underpayments from Medicare and Medicaid, according to a study released on Wednesday by Seattle-based Premera Blue Cross, the New York Times reports.
In 2004 -- the most recent year for which complete data are available -- hospitals in Washington charged an additional $738 million to private payers to make up for underpayments from Medicare and Medicaid, according to the study, which was conducted for Premera by actuaries at Milliman. The same year, Washington state physicians charged private payers an extra $620 million to compensate for losses from the government programs (Freudenheim, New York Times, 6/1).
The study also finds the following:
- In 1997, Washington hospitals had an annual profit margin of 2.9% for services for Medicare beneficiaries, while in 2004, they were experiencing a loss of 15.4% for those services;
- From 1997 to 2004, hospitals' profit margins for patients with employer-sponsored health plans increased from 5% to 16.4%;
- Profit trends for physicians' offices were similar to those for hospitals (Stucke, Spokane Spokesman-Review, 6/1);
- The cost to employers for the additional charges is equivalent to $902 per family insurance policy, or about 13% of all commercial hospital and physician costs; and
- Medicare pays physicians 25% to 31% less than private insurers in Washington, and Medicaid pays about 30% less than private insurers for children's office visits and up to 54% less for adults' office visits (Fetters, Everett Daily Herald, 6/1).
A second Milliman study, commissioned by Blue Shield of California, finds that health plans and consumers in California paid an additional $4.5 billion for hospital care to make up for underpayments by Medicare and Medicaid. The California study did not examine trends for physicians' offices.
Officials from business organizations, health plans and groups representing physicians and hospitals will meet in July to discuss the report and make policy recommendations, the Times reports. Employers say the rising health care costs are contributing to "the growing numbers of people without insurance," adding that "when those people check into hospitals, they generate even higher costs for those employers and consumers who pay insurance premiums," according to the Times.
Rich Maturi, a senior vice president at Premera, said the reports will show "employers and policymakers that they needed to address an unsustainable trend in the growth of cost-shifting" (New York Times, 6/1).
Premera CEO Gubby Barlow said, "It threatens to undermine efforts by employers, employees and health care providers to moderate the growing costs of medical care."
Bob Perna, director of health care economics for the Washington State Medical Association, said, "The payment rates that we see in the Medicare program are below what it costs for the physicians to deliver the service. And it's worse with the Medicaid program." WSMA says more than 65% of physicians in the state have stopped accepting Medicare and Medicaid beneficiaries as patients because of low reimbursement rates (Everett Daily Herald, 6/1).
Helen Darling, president of the National Business Group on Health, said, "This is a serious national problem, and it is only going to get much worse," adding, "There are more uninsured, the hospitals are inefficient, and every year Medicare and Medicaid hold down on increases to cover rising medical costs."
Paul Ginsberg, president of the Center for Studying Health System Change, said passage of the new Massachusetts health insurance law -- which included increased funding for Medicaid that was supported by both Blue Cross Blue Shield of Massachusetts and hospital group Partners Healthcare -- is "a real-world example of hospitals and insurers seeing that the[y] had common interests" (New York Times, 6/1).
The Premera study is available online. Note: You will need Adobe Acrobat Reader to view the report.