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2 policies causing Medicare costs to be passed to the insured

Everyone who’s looked at the data knows that the cost of Medicare is killing the federal budget. The Medicare payroll tax only covers about half the direct costs, with the rest coming from general expenditures. But as HealthLeaders points out, an increase in cost shifting from Medicare onto commercial plans may also be taking place.

The author, John Commins, notes that per capita costs in the commercial market grew more than 8 percent over the past year, while Medicare growth was just under 2 percent.

Robert Zirkelbach, spokesman for America’s Health Insurance Plans, agrees’ that the different rates of growth for commercial plans and Medicare can be attributed to cost-shifting.

‘Medicare simply dictates the prices they will pay for services, and often those prices are well below the cost of providing those services,’ Zirkelbach told HealthLeaders Media. ‘So, what happens is doctors and hospitals charge more to people with private insurance to cover the costs of those services.’

A couple of other federal policies may further exacerbate the situation:

With the minimum Medical Loss Ratio requirements of the Affordable Care Act, health plans may not care that much about higher medical prices. After all, their administrative costs (including profits) are capped as a percentage of premiums. All else being equal, higher premiums equals higher profits in dollar terms.

Providers are preparing for federally-authorized Accountable Care Organizations (ACOs) by consolidating. In the near-term that provides them with greater market power in negotiating with commercial payers. As Zirkelbach says:

‘Our members are getting rate increase requests from providers by as much as 60% and 70% in some markets across the country,’ he says. ‘There is a growing body of evidence and research showing that as hospitals consolidate, that leads to higher prices for services. In some markets there is only one ‘must-have’ hospital in a region that is able to charge significantly more for services, often 200%, 300%, 400% of what Medicare pays for the same services, and that is having a direct impact on the cost of care.’

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Comments (2)

  1. Submitted by Bernice Vetsch on 12/05/2011 - 03:00 pm.

    Another move Congress is considering is to cut Medicare payments to providers, which will cause yet more doctors and clinics to close their doors because Medicare doesn’t pay them enough to cover their payrolls and other expenses. Seniors in small towns are left trying to find a new doctor within 50 miles.

    A few years ago, a study by America’s Future ( noted that the insurance companies had merged so many times from 2001 to 2007 that 10 giants pretty much controlled the entire US market. In almost every state, one or two of these companies controlled most of the insurance market and — SURPRISE — increased their profits by 428% during those same years.

    The privatized Medicare Part D drug plan costs tens of billions of dollars more per year than simply adding drugs to Medicare as a regular benefit and negotiating prices would. Congress isn’t looking at correcting this error because the insurance and drug industries would lose money (as if they weren’t making far too much).

  2. Submitted by L.A. Krahn on 12/06/2011 - 08:29 am.

    And in Maryland, where a state board determines both commercial and Medicare payer rates for health services (and they are identical), should we expect to find NO cost shifting?

    Please look farther afield — and/or stop repeating AHIP-prepared dreck as news.

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