Skip to main content

Future of Cost Shifting Depends on the Little Guy

 |  By Philip Betbeze  
   January 20, 2012

Depending upon whom you ask, it's either a time-honored tradition or a dirty little secret. If you have commercial health insurance coverage, at some point or another, you've been paying for the shortfall in reimbursement from state and federal governments, whose Medicare and Medicaid programs, and thus the people they represent, pay less than you do for the same services and goods. Most of us continue to do so.

Actually, I don't think it's either a time-honored tradition or a dirty little secret. It's neither. It's politics and its little brother, economic distortion, at work.

Whether or not you are actually worse off for the practice is debatable. Assuming most of the beneficiaries of commercial insurance coverage are employed (other than dependents), you are also a taxpayer—so in theory, you're getting a break on one side and paying for it on the other.

But there's a big debate going on about how long these general subsidies can continue, given that healthcare costs continue to rise faster than the rate of inflation, and more importantly, that employers have gotten wise to the game.

None of this is any news to you if you're on the senior leadership team at a hospital, health system, or physician practice. In fact, it's a fact of life, and you're darn lucky it still continues, in a way.

But there's a big debate going on about how long these general subsidies can continue, given that healthcare costs continue to rise faster than the rate of inflation, and more importantly, that employers have gotten wise to the game.

Recently, I wrote as part of a column on the Medicare Payment Advisory Commission's recommended cuts in inpatient and outpatient payments to hospitals that while I once thought that such cost-shifting behavior would die a quick death as employers developed more sophisticated ways to value healthcare quality, I'm no longer so sure.

After all, healthcare is a growth industry for a reason, and I outlined my reasons, with research to back it up, that cost-shifting is far from dead.

Predictably, I got a lot of responses from readers who disagreed. One of the best was from a reader who pointed out, correctly, that large companies are increasingly splitting their healthcare contracting among dozens of high-quality, high-volume hospital partners.

By doing so, they guarantee a certain volume for the hospital or health system and get an excellent price per service for such guarantees, but also, they can assume excellent outcomes from such providers and if they don't get it, there are remedies.

They can also cut out the middleman, the insurer itself, if they like. All of this is true. But for every Pepsi that sends its cardiac and orthopedic cases to Johns Hopkins and every Lowe's that brings its heart patients exclusively to the Cleveland Clinic in return for low rates and high volume, there are hundreds of smaller companies that are far behind that curve and could never hope to have the infrastructure necessary to do such things.

I pointed out to her that most Americans are not employed by a Fortune 500 company with the infrastructure to do things like this, and that I remain unconvinced that cost shifting is dead or even nearly so.

Why? Because increasingly, it's not just large, organized entities like Lowe's or Pepsi that have discovered the problem. Small employers have too. And rather than take the paternalistic route, they've elected to let their employees feel some of the pain.

Largely, that group doesn't understand that the gobs of cash departing their bank accounts whenever they darken a hospital's front door go toward such an inefficient and unfair system. I can tell you this is true from recent personal experience.

Cost shifting over the long term doesn't work in any industry. But as I learned in economics 101, the short term can still last a very long time. I think we're far from the end of the cost shift in general, even if employers have largely gotten wise to the game.

As we chatted over email, my critic and I came to agreement on that score, at least. She conceded that her payroll deduction for healthcare costs has tripled over the past four years and her out-of-pocket costs have increased dramatically as well.

Where does she work?

A Blues plan.

Philip Betbeze is the senior leadership editor at HealthLeaders.

Tagged Under:


Get the latest on healthcare leadership in your inbox.