Tumblr Icon RSS Icon

How Are Medicare Rates Established?

By Igor Volsky  

"How Are Medicare Rates Established?"

Share:

google plus icon

On Tuesday, during an interview with AHIP’s Robert Zirkelbach, David Shuster suggested that private insurers opposed the public health insurance option because “the for profit insurance companies are terrified that if there is a public option that competes with what you do, people are going to leave the insurance companies and go to the government plan and people are going to lose profits.”

Without contesting Shuster’s characterization, Zirkelbach argued that a public option would underpay medical providers and put some doctors and hospitals out of business. “The way a government plan would save money,” Zirkelback explained, “is that they would simply dictate the prices that they pay for services. Right now, Medicare only reimburses hospitals about 85% of their cost. It’s employees and families that are paying $1500 a year to subsidize the Medicare program. ”

Watch it:

Most insurers, however, tee their payment rates for physicians off Medicare reimbursement rates. Medicare’s physician fee rates are based on the relative cost of providing services determined something called the Resource-Based Relative Value Scale (RBRVS). A panel of medical doctors, through the American Medical Association, updates the relative work values every five years based on: the time it takes to perform the service, the technical skill and physical effort, the required mental effort and judgment, stress due to the potential risk to the patient, malpractice rates in the area, and other geographic adjustments to reflect cost variation before coming up with a number. The process is also open to public comment and private health insurers — along with anyone else — have an opportunity to weigh in on the process and the rates

Zirkelbach’s explanation for why a new public option (which would pay Medicare-like rates) would shift costs to Americans with private insurance is similarly disingenuous. He assumes that private plans are always right in setting reimbursement rates. According to MedPAC, however, Medicare rates are adequate and consistent with the efficient delivery of services. In fact, over-payments by private insurers to health-care providers drives up overall costs. “Hospitals which didn’t rely on high payment rates from private insurers ‘are able, in fact, to control their costs and reduce their costs when they need to’ and ‘combine low costs with quality.’

Transcript:

SHUSTER: But Robert, those solutions did not include endorsing a public option, I mean it’s true that the insurance companies, the for profit insurance companies are terrified that if there is a public option that competes with what you do. People are going to leave the insurance companies and go to the government plan and people are going to lose profits. Isn’t that why you guys are opposed to this?

ZIRKELBACH: We do not support a government-run insurance plan, but consumers, employers, hospitals, doctors have always had concerns about this.

SHUSTER: It would cut into your business model, it would cut into profits if there is a government run plan that is cheaper for consumers. They will leave your plans and you guys will be left with lower profits, right?

ZIRKELBACH: What it means is that there are people who will be unable to keep the coverage that they currently have and like. It’s going to mean that hospitals across the country aren’t going to be able to keep their doors open and it’s going to add significant liabilities to the federal budget. Those are the kinds of concerns that people are raising and the stakeholder community is raising, and that’s why we’re seeing such a focus on this issue.

SHUSTER: But just to be clear Robert, it only adds significant liabilities if it is not paid for and all of the plans would pay for the public option. So we just have to be clear about that in the debate.

ZIRKELBACH: Well actually, are talking about is the way a government plan would save money is that they would simply dictate the prices that they pay for services. Right now, Medicare only reimburses hospitals about 85% of their cost. It’s employees and families that are paying $1500 a year to subsidize the Medicare program.

SHUSTER: Right, and out of all of the premiums that are paid about 47 percent, according to a University of Minnesota study, goes to the private health insurance companies known as loading fees. In other words, your paperwork, your marketing, your profits eat up nearly 50 cents of every dollar that Americans kick in. That’s one of the reasons that people are trying to change it, because they feel your industry is not entitled to take the money we give and put it in your pocket. People want health care for the money they pay.

ZIRKELBACH: The government data simply does not back that up. If you look at all the money we spend on health care in this country, less than one penny for every dollar in health expenditures goes towards health plan profits and administrative costs in total are only 12% in total and that includes investments in health information technology.

‹ AHIP Attempts to Portray Doctors as Villains

Obama’s Speech To Veterans Highlights Importance Of Public Plan ›

By clicking and submitting a comment I acknowledge the ThinkProgress Privacy Policy and agree to the ThinkProgress Terms of Use. I understand that my comments are also being governed by Facebook, Yahoo, AOL, or Hotmail’s Terms of Use and Privacy Policies as applicable, which can be found here.