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Cost-Shifting Blamed for Commercial Insurance Cost Growth

John Commins, for HealthLeaders Media, November 18, 2011

The average per capita cost of healthcare services covered by commercial insurance grew by 8.03% over the 12 months ending in September, while costs for Medicare healthcare services grew by only 1.97% for the same period, Standard & Poor's Healthcare Economic Indices show.

The two cost growth indices have both grown in the last several months but at significantly different speeds, with commercial plans far outstripping Medicare, even with the federal healthcare program's older, sicker population, which uses healthcare services more.

David M. Blitzer, chairman of the Index Committee at S&P Indices, attributes the variance in cost growth trends to "the fact that the rate-setting process is administrative and subject to administrative and political issues instead of economic issues."

"It's real obvious," Blitzer told HealthLeaders Media. "It's some guy who may not care that much saying, 'Here is how much you are going to charge. Period! Don't bother me!' That is going to have a different result than if it is negotiated in the market. That's not politics. It's kindergarten economics."

Robert Zirkelbach, spokesman for America's Health Insurance Plans, agrees with Blitzer that the different rates of growth for commercial plans and Medicare can be attributed to cost-shifting.

"Medicare simply dictates the prices they will pay for services, and often those prices are well below the cost of providing those services," Zirkelbach told HealthLeaders Media. "So, what happens is doctors and hospitals charge more to people with private insurance to cover the costs of those services."

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