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Premera Study Reveals Washington Employers Bear a Billion-Dollar Burden to Cover Medicare and Medicaid Cost Shifts; Annual Burden is $900 Per Family and Rising

Posted on: Wednesday, 31 May 2006, 15:01 CDT

On top of their own employees' growing healthcare costs, Washington employers paid more than $1 billion in 2004 to cover shortfalls incurred by hospitals and physicians serving Medicare and Medicaid patients, according to an analysis released today by Premera Blue Cross.

"Some call it Medicare and Medicaid cost-shifting; others call it a hidden tax," said Gubby Barlow, Premera CEO. "By any name, it's a billion-dollar burden for Washington employers and policyholders, and that burden is growing every year. It threatens to undermine efforts by employers, employees and health care providers to moderate the growing costs of medical care."

In 2004, this hidden tax cost Washington employers an average of $902 per family health insurance contract -- 13 percent of all commercial hospital and physician costs.

Premera estimates that Medicare and Medicaid cost-shifting, not employees' medical care, accounted for 29.9 percent of the increase in employee hospital costs paid by Washington employers in 2004.

"This growing trend has serious implications for the affordability of private insurance, and employee wages," said Steve Leahy, president of the Greater Seattle Chamber of Commerce, which employs about 32 people and represents 2500 businesses in the Puget Sound area. "We simply cannot sustain this cost-shift without serious long-term repercussions."

Spurred by the study, organizations from eastern and western Washington are convening this summer to begin exploring options to address the issue. The initial list of organizations includes the Greater Seattle Chamber of Commerce, the Spokane Chamber of Commerce, the Inland Northwest Business Coalition on Health, the Washington State Hospital Association, Regence Blue Shield, the Association of Washington Business, the Washington State Medical Association, Group Health Cooperative, the Washington Health Care Forum, the Snohomish County Economic Development Council, MultiCare Health System, the Polyclinic, and Premera.

Premera commissioned the May 2006 report, titled Payment Level Comparison between Public Programs and Commercial Health Plans for Washington State Hospitals and Physicians, from Milliman Inc., an internationally recognized consulting and actuarial firm.

The analysis shows that employers have faced increasing impact from government program hospital losses since 1997 when hospital profit margins on Medicare business began declining.

Washington patient related hospital margins on Medicare business fell from a 2.9 percent gain in 1997 to a 15.4 percent loss in 2004. During the same period, Washington hospitals increased their profit margins on the commercial (employer-provided) segment of their business from just over 5 percent to 16.4 percent.

In 2004, Washington hospitals lost $622 million for care delivered to patients with Medicare and Medicaid coverage. In contrast, the same hospitals earned $845 million for care delivered to patients with employer-provided health care coverage. The overall patient-related gain for Washington hospitals was $222 million, or about 2.4 percent.

Washington physicians experience a significant payment gap between Medicare/Medicaid and private sector patient care as well.

According to the Milliman study, Medicare pays physicians 20 to 26 percent less than commercial insurers in King County, and 25 to 31 percent less elsewhere in the state. Medicaid pays 31 to 36 percent less than commercial insurers for children's office visits; 50 to 54 percent less for adult office visits; 11 to 18 percent less for maternity services; and 55 to 58 percent less for other medical services.

In all, Premera estimates nearly $1.4 billion in medical care costs -- $738 million in hospital costs and $620 million in physician costs -- were shifted to Washington employers and other commercial customers in 2004 as physicians and hospitals charged higher commercial rates to offset payment shortfalls from Medicaid and Medicare.

"You can't fix what you don't see, and clearly no single entity can fix this problem alone," Premera CEO Barlow said. "Understanding the various drivers behind rising healthcare cost trends is one step toward more sustainable healthcare costs for the employers and members we serve. This collaboration with providers, employers, elected officials, and our members is part of a larger effort aimed at twin goals of better health and more sustainable costs for our members."

The full report is linked to this press release at www.premera.com/newsroom.

About Premera Blue Cross

Our mission is to provide peace of mind to our members about their health-care coverage. We provide health insurance and related services to more than 1.3 million people. Premera Blue Cross has operated in Washington since 1933 and in Alaska since 1957. Premera is an independent licensee of the Blue Cross Blue Shield Association. Premera Blue Cross is a member of a family of companies based in Mountlake Terrace, Washington, that provide health, live, vision, dental and long-term care insurance, and other related services. For further information, visit www.premera.com.

Source: Business Wire

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