Healthcare cost shifting is an issue that is near and dear to my heart. As a healthy person I have been practicing my form of “cost shifting” for over ten years. My health care strategy arose when I moved to Cincinnati and was unemployed. When I looked at the COBRA insurance rates and our health history, it was financially attractive for my family to go without health insurance. I did not plan to go with our insurance for so long but it worked. The two times we had major medical costs we used our “unemployed” status to negotiate lower payments. Cost shifting is not just for poor people any more!
My situation has changed over the years. Although I am now covered by a HRA at work, I still have the passion for getting the most out of my health care spending. For over twenty years while covered by a comprehensive health care plan, I exceeded my annual insurance deductible twice. Whether I was covered by insurance or not, most of my health care expenses have been out of pocket costs. So its natural that I question health care providers about costs. It is my money that is going to pay for the service. This sense that I own my health care is probably a good thing and something PPACA would like to encourage. In a strange irony, I am the type of person our health care reform needs to help drive down health care costs and the type of person PPACA wants to eliminate. I was surprised to find out a couple of months ago that the Individual Mandate and Essential Benefits provisions of PPACA take a direct aim at people like me. It seems so strange to me. How did I become the problem?
Although I have no qualms about pursuing “cost shifting” tactics as part of my health care strategy, I am confronted with a moral dilemma when it comes to “cost shifting” as a public policy. Since the primary weakness of the PPACA is in controlling health care costs, it is probably a good public policy to have a group of people with a vested interest in driving down health care prices. On the other hand this group may be too small to have an effect on health care costs rates for the general population. The primary problem with this tactic is that the lower rates experienced by this group may get swallowed up in “cost shifting”. Although “cost shifting” has some social benefit for the poor, it can be used by health care providers as a tactic to avoid change. I assumed that “cost shifting” with uninsured patients was a significant cost driver to health care cost growth. In today’s Wall Street Journal article, John Cogan, Glenn Hubbard, and Daniel Kessler express the view that “there is no credible evidence of a cost shift of any substantial evidence”. This would partially explain why the individual mandate has not reduced insurance rates in Massachusetts when I compared them to Ohio. Unfortunately this leaves the justification for an Individual Mandate and what constitutes “essential services” on shaky grounds. If the Individual Mandate is essential to health care reform, then it should have a significant effect on health care costs. In the case of Massachusetts, the Individual Mandate appears to have an insignificant effect. The Individual Mandate and Essential Benefits may have an effect on health care quality but I doubt anyone will presume that these quality improvements are essential to health care reform. It would be nice to have these quality improvements but they are not essential. It follows that “essential services” must be primarily linked to controlling health care cost growth. This brings me back to the same old question, “Why is the Individual Mandate and Essential Benefits necessary to health care reform if they are not lowering insurance rates?”
Here is some of the more pertinent parts of the Wall Street article.
But how strong is the evidence for this proposition? Our review of the research has found that there is no credible evidence of a cost shift of any substantial consequence, either within state boundaries or across state lines. Moreover, the new law will likely generate more cost shifting””the opposite of what its supporters would have us believe.
There are, surprisingly, few peer-reviewed studies of the magnitude of alleged cost shifting at the national level. A study conducted by George Mason University Prof. Jack Hadley and John Holahan, Teresa Coughlin and Dawn Miller of the Urban Institute, and published in the journal Health Affairs in 2008, found that so-called cost shifting raises private health insurance premiums by a negligible amount. The study’s authors conclude: "Private insurance premiums are at most 1.7 percent higher because of the shifting of the costs of the uninsured to private insurance." For the typical insurance plan, this amounts to approximately $80 per year.
The Health Affairs study is supported by another recent peer- reviewed study that focused exclusively on physicians. That 2007 study, authored by Massachusetts Institute of Technology economists Jonathan Gruber and David Rodriguez and published in the Journal of Health Economics, found no evidence that doctors charged insured patients higher fees to cover the cost of caring for the uninsured.
Where did Congress go wrong? We traced its estimates of the magnitude of the hidden tax of $43 billion per year, or an increase in family premiums by an average of $1,000 per year, to two sources””the aforementioned Health Affairs study, and a non-peer-reviewed study commissioned by FamiliesUSA, a Washington, D.C., group long known for its advocacy of greater government involvement in health care. Yet Congress simply ignored the evidence in the Health Affairs study and failed to recognize the serious flaws in the FamiliesUSA analysis.
Specifically, Congress ignored the $40 billion to $50 billion that is spent annually by charitable organizations and federal, state and local governments to reimburse doctors and hospitals for the cost of caring for the uninsured. These payments, which amount to approximately three-fourths of the cost of such care, mitigate the extent of cost shifting and reduce the magnitude of the hidden tax on private insurance.