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This Speakout has not been edited.

By Francis M. Miller

Prospectors pan lots of gravel to get one nugget of gold. My own Eureka! moment came recently when I discovered a chart that had been compiled for Colorado’s Blue Ribbon 208 Commission on Health Care by their consultants, the Lewin Group, using Colorado Hospital Association data.

This chart compares the payments that different categories of payers pay and it is very revealing. First, private sector payers, essentially everyone with insurance, is paying 31 percent above actual costs due to hospitals shifting costs from payers who do not pay their fair share.

Medicare and Medicaid pay 25 percent and 35 percent below actual costs due to the leverage government can exert. What is telling about this situation is that there is a nearly 66 percent gap between the payments made by the private sector and government. This represents a hidden form of taxation imposed on sick patients and private sector health plans through cost shifting.

There is another group of payers who represent less than 10 percent of the total and that is the self-pay category. These people include the uninsured who choose or must pay their bills out of pocket. What is revealing is that self-pays are getting 40 percent discounts in that niche of the market where comparison shopping still benefits the consumer.

I suspect that this situation is driving the health-care reform movement in untold ways. Insured payers and government both want the uninsured, self-pay person to pony up and pay more of a share. Government which has been pandering to voters by dispensing health benefits and then extracting discounts from the hospitals who immediately shift costs to private-sector payers is finally hitting a wall. Rising health-care costs are starting to make programs like Medicaid an unsustainable line item on state budgets, even at 35 percent below actual costs. And, the prospect of baby boomers retiring and moving onto the Medicare and Medicaid rolls is a tsunami about to hit and swamp the ship.

The cruel irony is that health reform as proposed by the 208 Commission will do nothing to relieve the stressed circumstances of private-sector payers and it will likely be short-lived for state government. It will certainly increase the amounts that the 8 percent who are self-pay patients pay by mandating that they buy insurance. Insurance plans that have to comply with mandates, including dental (which even Canada doesn’t provide), will assuredly charge more premiums than is being paid now out of pocket.

Hospitals, in the very short run, might shift costs less from payer to payer, but their costs will continue to rise and inflation will wipe out any gains made. It will be like the false promises of removing no-fault provisions from auto insurance.

More than anything, the Lewin Group analysis demonstrates that the rivalry in the health-care market is not between suppliers in a manner that benefits consumers. A truly functional health-care market would necessitate efficient, high-quality providers becoming bigger while inefficient, price-gouging providers would be forced to exit the market. This is a thought that terrifies all providers since they are not sure who is efficient.

Instead, the rivalry is between the group health insurance companies and large self-insured employers who must struggle against government’s never-ending propensity to dispense entitlements from society’s collective storehouse of wealth by shifting costs — which is nothing more than tax-and-spend in drag.

Francis M. Miller is a resident of Parker.

READER COMMENTS

Forward,

I am overwhelmed by your total command of the subject, your in-depth analysis and the data and facts that you present. You obviously dedicated hundreds of hours researching and investigating the subject and I'm impressed.

The next time you have a health problem, let us all know. I'm sure that you, being a whinning, liberal, socialist welfare junkie, will have no trouble spunging the necessary funding from real Americans and capitalists like me in order to buy yourself a one way ticket to Havana.

P.S. Drop the anger and just maybe you won't need your rabis shot.

your paranoyia spews fourth Hank, aside from your assumption that Democrats are commies. PROFIT motive is the problem hank. not government. for profit Insurance is the Chief pusher of prices. no matter how you attempt to spin it it is the bald faced truth. I do realize hank i will have to stand in line for REAL universal health care, Right behind YOU.

GOVERNMENT IS THE COST PROBLEM:

One way to see just how much the government is driving up costs is to compare the CPI and the PCED measures of medical care goods & services prices. The more comprehensive PCED (personal consumption expenditures deflator) includes government-financed health care costs, while the CPI covers only out-of-pocket costs (including those covered by private insurance) of urban consumers:
(1) The CPI rate was at a three-year high of 4.6% y/y in September, while the PCED rate was at an eight-month low of 2.8% in August.
(2) The services component of these two measures accounts for most of this divergence. The medical care services CPI rate jumped to 5.6% y/y in September, the highest since December 2002. The comparable PCED rate was 3.1% y/y in August, the lowest since last December.
(3) Within services, the problem is mostly in the hospitals price component. Based on the CPI, these costs rose 6.9% y/y in September, up from 5.9% in June, but below last September’s 7.5%. The rate was as high as 9.9% at the end of 2002. Based on the PCED, the yearly inflation rate was 2.9% in August, the lowest since March 2000.
(4) Since 1998, the average spreads between the CPI and PCED inflation rates for medical care goods & services, services, and hospitals were 94bps, 126bps, and 242bps, respectively.
(5) Since 1998, medical care goods and services prices are up 49.0% and 35.3% based on the CPI and PCED.
(6) Since 1998, medical services prices are up 54.0% and 35.3% based on the CPI and PCED.
(7) Since 1998, hospital prices are up 80.4% and 41.7% based on the CPI and PCED.

These comparisons all strongly suggest that as government spending on health care has increased to 40% of total such spending in the US from 30% in 1990 and 20% in 1970, the private sector has borne huge increases in health care costs. This is because the government, given its size and power in the industry, effectively controls the prices it pays. This forces providers to raise their prices to the private sector to remain profitable. Private health care insurance companies have responded by raising deductibles and copays. The physician’s services component of the CPI includes copays. It is up 35.2% since 1998, while the PCED component is up 20.1%.
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Boot the government out of the current system, encourage choice and competition with folks shoping the system and spending their own money in their own best interest. Then watch prices change for the better! Government is the problem, not the solution.

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