PR Newswire –

July 13: San Francisco - An analysis of California hospital costs and revenues released today by Blue Shield of California indicates that low reimbursement rates paid by Medicare and Medi-Cal (the state's Medicaid program) may result in cost-shifting onto private insurers amounting to 9.5 percent of premiums. With premiums for employer-sponsored family coverage in California averaging just over $10,000 per year, this translates to approximately $950 per policy.

Conducted for Blue Shield by Milliman Inc., a consulting and actuarial firm, the analysis shows a steep increase in the cost shift over the past four years, rising from 3.6 percent of premiums in 2000 to 9.5 percent in 2004. In dollar terms, this amounts to a per-policy increase from $213 to $951, based on average annual premiums for employer-sponsored family coverage.

"As policymakers weigh major cuts to Medicaid, they should be mindful that the program already severely underpays for hospital services, forcing businesses and privately insured individuals to cover the shortfall through higher premiums," said Ken Wood, chief operating officer, Blue Shield of California. "Any cuts that further constrain hospital reimbursements will drive this hidden tax even higher."

Milliman analyzed data reported to the California Office of Statewide Health Planning by 354 California acute care hospitals that typically serve privately insured patients. Hospitals in the study lost 26.5 percent on Medi-Cal patients and 16.7 percent on Medicare patients during 2004, while earning a 26 percent profit on privately insured patients. If reimbursement rates for all types of payers had been level as a percentage of costs incurred for care delivered, private insurers would have paid 24 percent less for hospital care than they did. Since hospital charges comprise approximately 40 percent of commercial insurance premiums, the excess hospital payment amounts to approximately 9.5 percent of overall health insurance premiums collected.

Will Fox, a principal and consulting actuary with Milliman, noted, "If hospitals did not have to cover losses due to government programs, it is very likely that private insurance premiums would drop significantly." Wood explained that the cost-shift creates a "vicious cycle" that results in ever-rising numbers of uninsured people.

"When government programs pay less than it costs to provide care, they are doing nothing to cut underlying costs; they're just shifting the expense onto people who pay private insurance premiums. And as premiums rise, more individuals and businesses will be unable to afford private insurance, leaving more people uninsured and placing a greater burden on public programs such as Medi-Cal," Wood said.