Friday, July 10, 2009

Acceptable Sacrifices

I have to admit that I haven’t had as much time to post here, what with the other things I’m doing this week. I’m especially aware of that as I hear bits and pieces on the news of other events in the business of health care.

One item that caught my attention was the report that representatives of the American Hospital Association had told the White House and Congress that hospitals would accept significant cuts in Medicare and Medicaid over the next ten years in support of a plan for universal access to health care.

For years now hospitals especially have struggled with the Medicare and Medicaid payments they’ve been receiving. That’s because the payments were set at a percentage of what the folks at the Centers for Medicare/Medicaid Services (CMS) thought costs ought to be (as opposed to paying fully what the costs actually were). While there are worse payers than Medicare and Medicaid, they’re big players; and their restrictions have helped make economics tight for everybody.

So, why would they accept these cuts? Because they’re hoping for a big jump in economies of scale. With roughly 40 million folks un- or underinsured, hospitals are losing 100% of the costs for many of those patients. If they can get something for those patients, even if it’s only, say, 60%, that will make up – perhaps more than make up – the lost increases from Medicare and Medicaid.

Remember that one of the ongoing issues in paying for health care is cost shifting. It’s basically the same consideration retail folks have for loss and petty theft: you know you’re going to have some marginal losses, so you raise the price of everything so that what you do sell will cover your costs. In health care the principle is the same, even if the dollar values are much greater. If hospitals are losing out entirely for some patients - and for some institutions this can run to millions of dollars – they have to raise their rates to cover the gaps. Since this raises all their rates, and since all institutions in a given economic area have the same pressures, that effectively raises costs, and so the value of the percentage they do receive from Medicare and Medicaid.

So, if there is coverage for those 40 million or so un- or underinsured, or even for a large percentage of them, that will provide revenue for hospitals that they aren’t getting now. With this new revenue where previously there was total loss, there will be less need to cost shift. So, the lower increases from Medicare and Medicaid will be acceptable.

That said, this all hangs on passing something like universal access to health care. If that doesn’t happen, the hospitals can’t accept the change. On the other hand, I think the hospitals will get enough to really help. After all, as we’re more and more aware, none of us will be able to accept the consequences of not changing.


Anonymous said...

My mom really gets out of shape when she learns of people who could afford some insurance but just rely on the emergency room for their medical care and don't worry about insurance. She says, at least in our state, you have to have automobile liability insurance or you can't drive. I was in an accident once when my 'dad and mom' barely knew me.I had no insurance. But they paid the bills partly because they did not want any friend of theirs having other people, who never heard of me, having to pay my bills. Frank

Marshall Scott said...

Frank, that is an important ethical issue. Just how much do people need to be responsible for in their health care? If a person rides a motorcycle and doesn't wear a helmet, should that person be able to get insurance for a brain injury while riding? If a person smokes, should insurance pay for certain cancer treatments? For many, the answer is, "Well, yes, at least under certain conditions; for no one acts to intentionally have a brain injury or get cancer." At the same time, we expect folks to demonstrate some responsibility.

In a few states, there are individual mandates to buy insurance. That is, they have to purchase insurance unless they can demonstrate really financial inability. That's one idea President Obama has suggested for his health plan. That would certainly reduce the number of people without insurance, and especially people your age and a bit older who are young, strong, and feel invulnerable. The thing is, when something does happen - and something does happen to at least some of them - it tends to be pretty drastic and pretty expensive. If you look at what I've said about cost shifting, they're an important group. They're young and they decide not to buy insurance, whether because they can't afford it or they think nothing can happen to them. When something does happen, they don't have the resources to pay. They become part of that "total loss" group, that cause institutions to raise rates. So, while requiring them to buy health insurance may be a personal inconvenience, but it also has a measurable benefit for all the rest of us. A big part of selling such a plan is convincing them of the importance of doing this for the rest of us.