A congressional budget office puts some numbers to the common knowledge that commercial payers pay providers far more than Medicare service fees. The consequences include lower taxable wages and increased federal health insurance subsidies.
First of three parts
It’s not news that commercial insurers pay providers more than Medicare. But a Congressional Budget Office (CBO) report documents the magnitude of the difference and traces it back to prices, not usage.
From 2013 to 2018, commercial insurers’ per capita spending on inpatient and outpatient care and physicians increased by an average of 3.2% per year and prices paid for services increased by 2.7%, more than one percentage point more than the increase in gross domestic product. commodity price index rose 1.6%, according to the CBO report released earlier this month.
During the same period, expenses for Medicare’s fee-for-service (FFS) program increased by 1.8% and prices paid by the program to providers increased by 1.3%, slightly less. than the 1.6% increase in the gross domestic product price index. .
But health expenditure is the product of a two-factor equation that also includes the use of services, itself composed of two factors: the number of services used and also the intensity of these services (the intensity of bypass surgery is far superior to, say, a routine office and a routine procedure to repair, for example, an abdominal hernia would fall somewhere in between). The CBO found that utilization was a relatively minor contributor to insurer and Medicare FFS program spending. For insurers, usage increased by 0.4% per year per person during the period 2013-2018. For the Medicare FFS program, the increase per year was just a little higher at 0.5% per year.
Here’s a graph from the CBO report that shows business and Medicare spending and their relationship to the price index:
The report also compares private payer payments to hospitals with Medicare FFS payments relative to hospital costs. Hospital cost data comes from the American Hospital Association. And for the purposes of this report, private payers included not only commercial insurers, but also uninsured individuals, motor vehicle liability insurers and workers’ compensation insurers.
CBO figures show a growing gap between private payers and Medicare FFS when it comes to hospital costs. In 2000, they were at 16.1 percentage points: private payers paid 115.7% of hospital costs and Medicare, 99.1%. By 2018, this gap had widened by 58.2 percentage points, with private payers paying 144.8% of hospital costs and private payers 86.6%.
Here is the graph from the CBO report that shows how the private payer and Medicare FFS payments diverged as a percentage of hospital costs:
The CBO report examines some of the implications of these spending and pricing trends. This holds no surprises for those familiar with the dynamics of US health care costs, insurance, provider prices and their ripple effects. The report notes that health insurance expenses account for a large portion of their employees’ non-wage compensation. As health insurance spending rises, employers are taking steps to protect profits, the report says, citing a study that found rising hospital prices are associated with higher out-of-pocket costs, an increase in the use of high-deductible healthcare plans and slower wage growth.
The report also discusses the favorable tax treatment of commercial health insurance, both in the group market and in the individual market. The report describes a cascading effect of insurers passing on higher costs to employers through premiums, which employers and employees pay with pre-tax dollars, resulting in taxable wages and therefore increasing what is, in fact, federal subsidies for employment-based insurance. Likewise, as premiums increase in the personal market, ACA tax credits to offset premiums increase.