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The Valley Reporter
P.O. Box 119
Waitsfield, VT 05673

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Cost-shifting as a tax

I would like to add some additional insight to Russ Bennett’s excellent article in the April 19, 2012, issue of The Valley Reporter. There is one dynamic that Russ did not discuss in his article that deserves some attention, and that is the issue of the “cost shifting” that takes place between health care payers. As government entities Medicaid and Medicare unilaterally decide how much they will reimburse health care providers. For a typical small hospital in Vermont that has translated into 25 percent of charges for Medicaid and 60 percent of charges for Medicare. These reimbursement levels would translate into approximately 31 percent of cost for Medicaid and 75 percent of cost for Medicare. In the end, the hospital needs to be paid for 100 percent of its costs, so it transfers those costs to the balance of its patients by increasing its rates. In general, hospital rates are increased by about 30 percent to 35 percent to “cover” this cost-shift. As the proportion of Medicaid and Medicare patients has increased dramatically over the past two decades, the hospital charges have increased at a significantly higher rate than hospital costs, which is directly related to the large increases in insurance premiums.

Insurance companies have become more and more aggressive about improving their market advantage over competitors by seeking discounts. This has only added to the amount of the cost-shift to those without competitive advantage.

In the final analysis the cost-shift represents a tax that we all pay directly through our insurance premiums or pay indirectly through the higher prices we pay to those businesses which provide insurance. The goods and services we buy from insurance-providing businesses reflect the cost of providing health insurance, and this can put these businesses at a competitive disadvantage when they are competing against businesses that do not provide insurance.

A single-payer system would need to establish equitable reimbursement rates to all providers in order to eliminate the cost-shift tax. There is an opportunity to reduce insurance premiums by 30 percent to 35 percent should all payers pay their fair share. Any program that perpetuates the cost-shifting by allowing for special reimbursement rates for Medicaid and Medicare would ignore the current reimbursement inequity that represents a “hidden” tax for most people.

Duncan Brines lives in Waitsfield.


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