REPORT: Low Medicare And Medicaid Reimbursement Rates Shift Costs To Private Payers

A coalition of health providers — AHIP, American Hospital Association, BlueCross BlueShield Association, Premera — released a new report today arguing that “annual health care spending for an average family of four is $1,788 higher that it would be if Medicare, Medicaid and private employers paid hospitals and physicians similar rates, with total provider reimbursement unchanged.”

In short, Medicare and Medicaid don’t pay enough for services, causing private insurers providers to shift the uncompensated costs to private premiums private payers. The cost shift from public to private payers is $88.8 billion, or 15% of the current amount spent by commercial payers on hospitals and physician services, they argue:

Rather directly advocating for a $90 billion government infusion to close the gap, the groups suggested that the government should subsidize the shortfall and implement pay-for-performance reforms and comparative effectiveness research in any comprehensive health care reform effort. “Tomorrow’s system has to be more economical,” Karen Ignagni — the CEO of AHIP — explained.

Point well taken. While Medicare and Medicaid underpay for some services, one-third of all health care spending — $700 billion — is spent on tests and treatments that do nothing to improve health outcomes. Cost-containment measures like comparative effectiveness research and coordinated care should help reduce wasteful spending, lower costs and improve quality.


But more importantly, the report can be interpreted as an industry effort to influence the forthcoming health care reform. While AHIP has agreed to offer insurance to every American, if everyone were required to purchase coverage, the group is trying to stave-off competition from a new Medicare-like program, which would force private insurers to compete with a more efficient public model and eat into profits.

As Ezra Klein found during his interview with AHIP, insurers oppose any such competition:

Ezra: And let me ask you about another thing that you often see in here. A lot of folks argue that one way to bring costs down would be to inject competition through a public insurance option. How would AHIP respond on that?

AHIP: We do not support that type of approach. You know, our members provide a variety of coverage options to meet the individual needs of consumers. And we think that that approach, where there’s a public option where they got to set the rules when competing with private companies, that would not achieve the type of goals on improving coverage and improving access, and making healthcare coverage more affordable. So we think that we need to get everybody in the healthcare system and that we can do that by building on what’s currently working in our system.

As Richard Umbdenstock, the President and CEO of the American Hospital Association pointed out during the press conference, the report’s backers support reform but “if it’s through a new government program that underpays, it would exacerbate the problem, that would not be good.” Expect some opponents of comprehensive reform to argue that providing a new public option or expanding Medicaid and Medicare would force doctors out of business and limit patient choice.


The New America Foundation criticizes the math.


,John Goodman makes the ‘public plan will drive doctors out of business’ argument here and Uwe Reinhardt responds here.