After the Clinton Plan was dropped, and then after fifteen years of aftermath, public dissatisfaction with the health financing system is no better, probably worse. Here are some fresh ideas.
Hospitals Shift Costs Three Ways
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| Safeway Store |
The CEO of Safeway Stores recently offered his own company's preventive approaches as an example of what the nation can do to reduce health costs. He's undoubtedly sincere, but he's wrong; he just shifted costs to Medicare. This is only one of three ways, major ways, cost-shifting is misleading us. Let's explain that.
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| Medicare |
Average life expectancy is increasing at more than two years per decade, but people always eventually die. Since health care costs are heaviest in the last year or two of life, extending life will soon push nearly all those heavy terminal costs from employer based insurance -- into Medicare. To die at age 64 costs Blue Cross a lot; but to die at 65 just costs Medicare a lot. Either way, the cost is exactly the same, it doesn't save Society as a whole any money at all. Let's put it another way: dying at age 64 costs the employer and the employees; but dying at 65 costs the taxpayers. Increasing longevity is constantly pushing more costs from employers to Medicare, and not just in Safeway; the prospect is that soon substantially all major sickness costs will tend to shift into Medicare. (To explain the failure of most employer insurance premiums to fall comparably in response to this shift, one must look elsewhere).
But instead of going down that trail, let's look at a second form of cost-shifting. Government payers and a few other monopolists are able to pay hospitals less than actual costs, and get away with it. The worst offenders are state governors administering Medicaid, where the underpayment is roughly 30%, in spite of federal reimbursement to the states for most of it at full price. The resulting profit is used for various state purposes, mainly nursing home reimbursement. For the most part, such diverted funds are used for purposes not easily eliminated, so it is unlikely there will be much cost reduction for government if the scam is acknowledged and merely shifted to a different line in the ledger. To avoid bankruptcy, hospitals raise the rates for other health insurance plans -- and the uninsured. Employers are paying for most of it, so they stand to gain from reform, only to face higher state taxes as matters readjust. We have yet to learn where these costs will shift if the federal government takes over the costs of the uninsured; the current Obamacare plan is to shift 15 million uninsured persons to Medicaid. To a major degree, the federal government and its taxpayers are already paying for a lot of this uninsured cost, through the Medicaid shift. So its present dilemma is whether to continue to pay for it twice.
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| Blue Cross Blue Shield |
There's still a third cost-shift. In 1983, Medicare stopped reimbursing hospitals fee-for-service (itemized patient bills are still prepared but are meaningless fictions) and for thirty years has paid by the diagnosis, not the service. Consequently, per beneficiary inpatient costs have only risen 18% in five years, while outpatient costs have risen 47%. Skilled nursing and home care costs are rising even faster. When you hear fee-for-service payments attacked, it is this apparent overpayment of outpatient costs which is the source of complaint. But to pay out-patient medical costs in any way other than fee-for-service would imply an almost unimaginable restructuring of the medical system, without any proof that it would save money. It will be very interesting to learn what contorted proposal is about to emerge.
Not only do these shifts provoke inpatient nursing shortages, they start a war for patients between hospitals and office-based physicians. Hospitals are winning this war for business, but they are losing money to do so. If the public ever demands a stop to loss-leaders, net insurance premiums will probably rise; if the public doesn't wake up in time, some hospitals will probably go broke. The difference between a hospital which makes money and one which loses money is based on whether there is enough out-patient revenue to compensate for the hidden tax which the state effectively imposes on hospitals in order to pay for nursing homes. The obscurity of the present payment system is quite expensive, and the present beneficiaries of it are the Medicaid nursing homes. Obamacare essentially provided health insurance to 15 million uninsured by the process of placing them on Medicaid, so the consequences are going to be an interesting juggling act to watch.
Just notice, for example, that neither Medicare nor private health insurance pays below costs, if you look at total national balances. Private insurers are paying hospitals 32% more than actual inpatient costs, while Medicare is paying 6% more than national cost. And yet 58% of hospitals are losing money. The magic in this formula lies in the losses incurred by state Medicaid but shifted to other payers. It could fairly be said we are just looking at a maldistribution of the uninsured, as a cost, and a maldistribution of non-inpatient revenues, as a profit, among the nation's hospitals. To what extent such maldistribution reflects uneven patient quality, as the loser hospitals claim, or provider inefficiency, as the winner hospitals would say, -- merely starts a distraction of attention which could last twenty years while we examine it.
And disruptions enough to take decades to fix.
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