Healthcare executives who care about the financial future of their organizations should do everything they can to defeat any healthcare reform bill that would create a new public health insurance program. Not only is such a program bad public policy, it would be bad for business. A new public health insurance program would be just as poor a payer as Medicare and Medicaid. And if the public plan puts even a few private health insurers out of business, providers would have fewer options to make up the payment shortfalls.
Public enemy No. 1
A new public insurance program likely will shortchange providers
Here are some numbers to chew on:
- Hospitals overall Medicare margin, which is a measure of hospital profitability on all lines of Medicare-covered services, dropped to a negative 5.9% in 2007, according to the Medicare Payment Advisory Commissions March report to Congress. That means for every dollar hospitals spent on caring for Medicare patients, it got back a little more than 94 cents. MedPAC said it projected hospitals overall Medicare margin to drop further to a negative 6.9% this year.
- Hospitals overall Medicaid margin is even worse, according to the latest figures from the American Hospital Association. In a March 2008 report, the AHA said hospitals overall Medicaid margin was a negative 14%. That means for every dollar hospitals spent caring for Medicaid patients, they got back just 86 cents.
- Yet, at the same time, hospitals enjoyed their best year financially in 2007. That year, the aggregate profit margin for the hospital industry was a record 6.9% with profits at a record $43 billion.
With Medicare and Medicaid patients representing more than half of all hospital business, how did hospitals do it? Well let MedPAC explain. In its March report, MedPAC said that starting in 2000, hospitals had regained the upper hand in price negotiations (with private insurers) because of hospital consolidations and consumer backlash against managed care. Consequently, the rates paid by private insurers to hospitals rose so much that by 2007, private payers were reimbursing hospitals on average more than $1.32 on the dollar, according to MedPAC. Or, hospitals profit margin on patients covered by private insurance was 32%.
MedPACs report on Medicare payment shortfalls to physicians for care is similar. Thats why the agency recommended that Medicare increase payments to physicians by 1.1% in 2010. Physicians also are shortchanged by Medicaid. A recent study from the Urban Institute done in partnership with the Kaiser Commission on Medicaid and the Uninsured and the California HealthCare Foundation said some states have increased their Medicaid reimbursement rates for primary-care and obstetric services but those increases didnt keep up with the rate of inflation. Yet, most doctors are still making a go of it because of the better payment rates they get from patients covered by private insurers.
So, healthcare executives should ask themselves honestly whether they think a new public health insurance plan available to people who dont quality for Medicaid, dont qualify for Medicare and dont receive coverage through their employer or any other private source would be a fair payer given their experiences with Medicare and Medicaid?
If youre still not convinced it would be a financial disaster, consider this: The new public insurance program would compete with private insurer plans by charging less for health benefits. If the public plan is taking in less revenue per enrollee, it certainly is not going to pay out more per enrollee for care. The new plan would be an even worse payer than Medicare or Medicaid. Then, where would providers turn to charge more to cover the shortfalls? To the fewer private plans whose ranks where thinned by competition from the new public health insurance program? Good luck with that, as they would be far less generous as they fight for survival against the new government program.
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