Study: Medicaid cost shift is driving up private insurance premiums

Print More

(Host) The Legislature is looking at the growing mismatch between how much it costs to provide health care to Medicaid patients, and what the state actually pays.

The practice is known as a cost shift because private insurance picks up the difference.

A new study says the cost-shift is growing, and it is driving up premiums for private insurance.

VPR’s John Dillon has more:

(Dillon) Chittenden Senator Doug Racine chairs the Health and Welfare Committee. And he opened a recent hearing with a little history lesson.

As Racine explained, the cost shift is nothing new. The practice of the state underpaying hospitals – and then the cost being transferred to private insurance – caught the attention of lawmakers when they were writing the 2002 budget. The legislature put language in the bill to try to address the problem.

(Racine) “It says the state of Vermont shall adopt a fiscal strategy and appropriations to achieve the following goals. And number one amongst those is to eliminate within a period of time no longer than four years the cost shifting and under-reimbursement in the Medicaid program.”

(Dillon) It didn’t happen. The under-payment has more than tripled from $26 million in 2001, to $84 million this year.

Vermont’s hospitals don’t just eat the difference. They off-load the cost on to private insurance plans.

A new study by the state’s Joint Fiscal Office says the Medicaid cost shift is now responsible for 9 percent of insurance premiums.

Dick Park of the Vermont League of Cities and Towns calls it a hidden tax.

(Park) “I think we’d all agree that hidden taxes is not good government and it creates bad policy decisions in everything we do.”

(Dillon) Park says the only option for many employers is to reduce benefits in their health plans, and hike employee premiums.

Jeanne Keller is a health policy analyst and consultant for the League of Cities and Towns. She says Vermont’s Medicaid payments to hospitals are about 56 cents for each dollar of cost. She says the national average is about 87 cents. 25% of the state’s population is on Medicaid.

(Keller) “The problem is not that we put people on Medicaid but that the Legislature and the governors have never budgeted enough to pay for it. They don’t keep up with inflation for Medicaid reimbursement to providers … They’ve been starving the providers and the providers have no recourse but to charge the private insured higher rates.”

(Dillon) Hospitals are concerned about the cost shift getting worse. Bea Grause is the president of the Vermont Association of Hospitals and Health Systems. She says Governor Jim Douglas’s budget will exacerbate the cost shift because of a proposed cut in payments to hospitals to cover a provider tax. And Grause says not all the cost will be transferred to private insurance.

(Grause) “Hospitals will be forced to absorb these losses and … have already started to see that some hospitals have laid off employees. They’ll be forced to reduce services and cut programs.”

(Dillon) The Douglas Administration says the under-payment on the provider tax this year represents a tiny portion of overall hospital payments. But Democratic lawmakers have promised to fight the cut.

For VPR News, I’m John Dillon.

Comments are closed.