PRIVATE PAYERS SUBSIDIZE PUBLIC PROGRAMS

June 20, 2007

Government underpayments to hospitals in the Medicare and Medi-Cal programs are a substantial factor in driving up private health care costs, while the impact on private payers of uncompensated care for the uninsured was minimal, according to a new study by the California Foundation for Commerce and Education (CFCE).

Consider:

  • If, in 2005, the revenues for every California hospital's Medicare and MediCal patients had been sufficient to cover these patients' costs, then private-payer patients' revenue-to cost ratio would have declined by 10.8 percentage points.
  • On the other hand, if, in 2005, the revenues for every California hospital's indigent patients had been sufficient to cover these patients' costs, then private-payer patients' revenue-to-cost ratio would have declined by 1.4 percentage points.
  • In effect, this cost shifting means that purchasers of private health insurance effectively pay a "tax" in order to finance the care of patients who are uninsured or covered by public insurance programs such as Medicare or Medicaid.

"State health policy reforms that seek to cover the currently uninsured are unlikely to lead to significant reductions in private insurance premiums, at least due to decreases in cost shifting.  In contrast, increases in public-program reimbursement rates could have an economically important impact on premiums," says study author Daniel P. Kessler of the Stanford University Graduate School of Business, a Senior Fellow at the Hoover Institution.

CFCE President Loren Kaye added, "The message to state and federal policy makers is clear: the most efficient way to reduce private health care premiums is to increase public insurance program reimbursements.  There are many benefits from increased health care coverage for the uninsured, but a significant reduction in private payer premiums is not one of them."

Source: "Private Payers Subsidize Public Programs; Only Slight Effect from Uninsured," California Foundation for Commerce and Education, June 6, 2007.

 

Browse more articles on Health Issues