Health Care

Study Shows Gov't Health Care More Expensive Than Private

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By Greg Scandlen, Heartland Institute Health Care Expert

I have been remiss in not reporting earlier on an important study by the actuarial form Milliman, issued in December 2008. This study tries to balance the hysteria about cost-shifting from the uninsured to people with private coverage with an analysis of how much cost-shifting is the result of underpayment by Medicare and Medicaid.

The answer, it turns out, is that underpayment by those two public programs dwarfs any problems created by the uninsured.

The study separates out payment to hospitals and to physicians. It does not attempt to tackle prescription drugs, home health care, nursing home care, or any of the other covered services. It finds that Medicare underpays hospitals by $34.8 billion and physicians by $14.1 billion, while Medicaid underpays hospitals by $16.2 billion and physicians by $23.7 billion. These amounts are made up for by commercial payers, resulting in 18 percent greater costs for private carriers for hospital services and 12 percent for physician services.

Of particular interest is a table showing the hospital operating margins by payer category. In 2006 hospitals lost:

    * $19.4 billion on their Medicare cases, for a negative margin of 9.4 percent;

    * $10.7 billion on Medicaid cases, for a negative margin of 14.7 percent; and

    * $12.7 billion on "other government and self-pay" for a negative margin of 25.1 percent.

This last category includes the uninsured, but also government programs such as workers compensation, the military, native Americans, and programs for the indigent. While the negative margin is very high at 25 percent, the actual dollar loss is small compared to Medicare and Medicaid--$12.7 billion vs. $30.1 billion.

Milliman does not separate out the uninsured self-pay population from those covered by other government programs, but if one-half of this loss is from the uninsured, we are looking at approximately $6 billion, one-fifth of the loss from Medicare and Medicaid!

Yet the issue of uncompensated care for the uninsured is one of the primary drivers of the current push for mandatory coverage and health reform. It has been called a "hidden tax" that we all pay for, and it is seen as justification for a massive reordering of the entire health care system. But hardly any attention is paid to underpayment by public programs, a problem that is perhaps five times greater.

And you wonder why public policy so often goes astray.

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