Health Insurance reform debate

Jerome Stocks Jerome Stocks Leave a Comment


One indisputable fact of the health care reform debate is that free care provided to the uninsured is a hidden tax on all the rest of us. It’s a hidden tax because it creates “cost shifting” which is where the costs of free care are shifted to those of us with money or private / commercial Health Insurance. The predictable result is higher premiums and costs for all.

But there is another level of cost shifting that has a tremendous impact. It’s called “under-compensated” care.
So, what is under-compensated care? It’s the care provided to Medicare and Medi-Cal / Medicaid patients by hospitals
and doctors who are paid at government-mandated levels far lower than the true costs to provide such care.

The Milliman company (A very large independent actuarial and consulting firms –, did a study which shows the extent of the cost shifting caused by under-compensated care in the Medicare and Medi-Cal / Medicaid programs. They estimate that something over $88 billion in cost is shifted to private / commercial health plans each year due to artificially lower reimbursement rates to hospitals and physicians from the government run plans.
How does this affect the typical private / commercial health plan? The most obvious answer is through higher premiums; But another costly effect is through additional cost sharing by virtue of increased deductibles and co-payments to help offset the upward price pressure.
The net result is another hidden tax on all private / commercial insured people in the form of a cost-shift subsidization of Medicare and Medi-Cal / Medicaid.
Clearly, one of the great challenges private / commercial health insurance plans face is the negative influence of government involvement in the purchasing of health care. Every time Medicare or Medi-Cal / Medicaid unilaterally reduce their payment schedules to providers, those providers are forced to adjust  and more burden falls on the shoulders of the rest of us.
In the current debate over health care reform and inclusion of the so called “public option” keep in mind
the impacts of Medicare and Medi-Cal / Medicaid on the private / commercial market for health insurance.
There is plenty that reasonable and rational legislator’s could do to improve things within our current system, but a new government run health plan with the unilateral power to set pricing by law will likely have the net effect of overburdening private health plans which will logically and ultimately result in the “public option” becoming the only option.

In the interests of full disclosure I must state that I am the President of J Stocks Insurance Services, Inc specializnig in Health Insurance for individuals, families, and small groups; and have served Californian’s since 1981 in the capacity of Insurance agent and Broker.


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