FIXING THE GAME

Ideas from the insurance industry and its supporters

Fixed Rule:

The plan for health care reform put out by America’s Health Insurance Plans (AHIP), the trade association of the health insurance industry, claims we need to confront “the ‘cost-shifting surtax’ currently imposed on employers and consumers purchasing health care coverage.”

What they mean, as they made clear in a press conference during which they released a report on this ‘cost-shifting,’ is that public programs should pay providers more.

The report, released by three industry trade groups, America’s Health Insurance Plans (AHIP), the Blue Cross Blue Shield Association (BCBSA), and the American Hospital Association (AHA), tries to make the case that Medicare and Medicaid payments to providers are too low, which forces the providers to charge the private insurance companies more, which in turn raises the costs of health insurance premiums.

Prepared by the actuarial and consulting firm Milliman, the report only compares how much different payers reimburse providers for the same service. It makes no attempt to determine how much is appropriate payment for any given service. Even the press release for the report makes that clear:

“The study does not assess appropriate levels of payment, but rather the disparities among current payment rates.”

So are hospitals and insurance companies suffering from this supposed ‘cost-shifting?’ Quite the opposite. According to the AHA, in 2007 the country’s community hospitals saw “the largest single-year jump in profit margins in at least 15 years,” posting $43 billion more in revenue than expenses. And the top seven for-profit health insurers had combined profits of $12.6 billion in 2007, an increase of 170.2% from 2003.

What is most remarkable, however, is that no one seems to know how much it actually costs hospitals to provide services. According to A Study of Hospital Charge Setting Practices, a report prepared by the Lewin Group for the Medicare Payment Advisory Commission:

“The Medicare Payment Advisory Commission (MedPAC) has expressed concerns about the accuracy and fairness of the current Medicare hospital in- and out-patient prospective payment systems (PPSs). Payment rates for these systems are based, to varying degrees, on hospital charges. However, little is known about how hospitals set their charges.”

In fact, a recent report by the Congressional Budget Office (CBO), “Key Issues in Analyzing Major Health Insurance Proposals,” looked at the issue of cost-shifting and found that higher private insurance payments may actually be driving costs up:

“Instead of low Medicare payment rates causing private rates to be higher, high private payment rates at some hospitals may be leading them to relax their efforts to control costs. In turn, that tendency may have pushed up per-patient costs and thus caused payment-to-cost ratios for Medicare (and private) patients at those hospitals to be lower than they would be at hospitals that have lower per-patient costs.” (Emphasis added.)

As The New York Times recently reported, Representative Pete Stark of California, chairman of the Ways and Means Subcommittee on Health, also does not accept the argument that Medicare is grossly underpaying doctors and hospitals:

“Many of the private plans are poorly managed,” he said. “They are the General Motors of medical care delivery. Medicare is paying the right amounts. To suggest that a heart surgeon has to make $600,000 or $700,000 a year, as opposed to only $400,000 under Medicare fees, does not get much sympathy from me.”

Fair Rule:

• A public alternative to insurance company coverage that is accountable to us.
• Fair regulation and oversight of insurance companies, with government as a watchdog.



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