Medicare May Be Serving Seniors, but It’s Putting the Rest of Us in a Financial Death Grip

Information released this past week point out the damaging impact that government health-care programs are having on the commercial, health-insurance market, and the market for private health benefits.

The first bit of news comes from the latest Healthcare Economic Indices released by Standard & Poor's (click here for the indices).  The indices show that the average cost of health-care services covered by private-insurance companies jumped by nearly 7.5% for the year ending June 2011.  By comparison, the average cost of services covered by Medicare increased only 2.5 percent for that same time period.  Experts speculate that hospitals will likely continue to shift costs to private payers as government programs squeeze hospitals and doctors with lower reimbursements to manage their program shortfalls.

For every action, there is an equal and opposite reaction.  On Monday of this week, the National Business Group on Health released the results of a survey of its membership.  The news here is that large employers expect their health care costs to increase 7.2% in 2012.  Is it just coincidence that hospitals are increasing their charges to private insurers by 7.5% and that commercial health-care costs will be up by an expected 7.2% in 2012?

The secondary affect of these developments is that employers now plan to offer even more consumer-driven health plans in 2012.  Of those surveyed by the National Business Group on Health, 75% said they expected to offer a high-deductible health plan (HDHP) with a health savings account (HSA) in 2012, compared to 64% this year.  Realistically, we should expect all, large employers to offer HDHP/HSA products within the next two to three years.

Some time ago, the virtues and vices of high-deductible health plans used to spark fierce debates. Not now.  For the time being, those debates have been overshadowed by the reality of health-care costs that continue to rise, and to increase disproportionately for commercial insurance programs.  High-deductible health plans are now the default choice for employers seeking to shield themselves from the costs of commercial health insurance.

Far from being better purchasers of health care, the government simply establishes a price it is willing to pay, leaving hospitals and physicians to right size their income statements and balance sheets by digging into the pockets of their customers.  As long as employers continue to finance the lion’s share of the private sector health-care tab, they will adjust their benefit programs to achieve a premium price point that’s affordable.  This will drive the continued adoption of high-deductible health plans and health savings accounts.

In the short run, advocates of greater health-care consumerism are benefiting from the continuing cost shifting from government programs that’s taking place.  This phenomenon may be single-handedly creating millions of HDHP/HSA health-care consumers, who are learning firsthand how to become savvy health-care purchasers.  This may, however, simply be the proverbial “lipstick on the pig.”

Unless America’s government programs are reformed quickly, they will continue to crowd out private benefit programs and make them even less affordable.  The increased prices paid for services in the commercial market are, in reality, a hidden tax paid to support the solvency of the Medicare program.

Equitable, sustainable, payment system reform can’t come quickly enough.