Medicare reimbursement shakes things up

Comment: This article discusses a survey that suggests part of the high cost of employer paid and individual health insurance (10.6%) is due to the insufficient payment made by Medicare and Medicaid. Something to consider when many people want the government to take a larger role in the process.

By Lydell C. Bridgeford

January 28, 2009

Insufficient reimbursements to physicians and hospitals by Medicare and Medicaid contributes to higher health insurance costs for private employers and their workers, according to a study by Milliman, a Washington, D.C.-based actuarial consulting firm.

The annual health care cost for an average family of four is $1,788 higher because of insufficient payments made by Medicare and Medicaid to physicians and hospitals.

As a result, privately insured employers and consumers make up the shortfall through cost-shifting. Employers and health insurers pay a "hidden tax" of $88.8 billion each year, reports Milliman.

The analysis defined the cost shift as the difference between actual payment rates and average payment rates for Medicare, Medicaid and private payers. The research doesn't examine appropriate levels of payment, but instead shows the disparities between current payment rates.

The study reports that cost-shifting adds an estimated $1,512, or 10.6%, to the average premium for a family of four. Of this amount, employers pay $1,115, and the employee share is $397. Families also spend an extra $276 more in coinsurance and deductibles due to the cost-shift.

"As we consider approaches to expand coverage nationally, we need to keep in mind the disparity among Medicare, Medicaid and commercial provider payment rates and the pressure that this disparity places on hospitals, physicians and commercial payers," says John Pickering, principal and consulting actuary at Milliman.

Medicare reimbursement polices will also affect how hospitals use nurses to generate revenue, according to a survey by AMN Healthcare, a health care staffing company.

The survey involved 305 hospital chief nursing officers and examines the role of nurses as financial rainmakers.

Under new Medicare rules, hospital reimbursements will also factor in patient-satisfaction rates regarding quality of care. When asked about Medicare efforts to tie hospital reimbursement to patient satisfaction scores, 62% of nurses indicated that patient satisfaction-based payment systems would enhance the status of nurses.

"Many hospitals in the past have considered nurses to be a cost," notes Marcia Faller, chief nursing officer of AMN Healthcare. "Under the new payment systems, they are more likely to be seen as an investment," she adds.