Stanford Business Magazine November 2007

Private-Payer Rates Increased by Uncovered Medicare Costs

Arguing that caring for the uninsured has prompted doctors and hospitals to shift the burden to private payers as a type of “hidden tax,” California Gov. Arnold Schwarzenegger proposed a universal health coverage system. The governor cited a study by the New America Foundation that said private payers are handing over 6 to 11 percent more in order to cover the cost of caring for those without health insurance.

Kessler Not so, counters Daniel Kessler, a professor of economics, law, and policy at the Business School. He says that health care costs for those without insurance led to a 1.4 percent increase in private premiums, compared to a whopping 10.8 percent escalation due to uncovered costs of MediCal and Medicare from 2000 to 2005.

Using hospital data from the California Office of Statewide Health Planning and Development, Kessler analyzed how health care providers shift costs in a study commissioned by the California Foundation for Commerce and Education, a private, nonprofit organization affiliated with the California Chamber of Commerce. He published results in a 2007 paper titled “Cost Shifting in California Hospitals: What Is the Effect on Private Payers?”

“At least for hospital care in California, the costs of caring for the uninsured or indigent patients do not impose a heavy burden on private health care costs,” he says. “However, the burden of uncovered Medicare and MediCal costs is substantial.

“State health policy reforms that seek to cover the currently uninsured are unlikely to lead to significant reductions in private insurance premiums, at least due to decreases in cost shifting. In contrast, increases in public program reimbursement rates could have an economically important impact on premiums.”

—Ben Pimentel

Stanford Business magazine

Private-Payer Rates Increased by Uncovered Medicare Costs