Limiting Private Insurance Reimbursement to Medicare Rates Would Reduce Health Spending by About $350 Billion in 2021
Executive Summary
Rakesh Kochhar “Unemployment rose higher in three months of COVID-19 than it did in two years of the Great Recession,” Pew Research, June 11, 2020; U.S. Bureau of Labor Statistics, “Labor Force Statistics from the Current Population Survey,” February 5, 2021; Kim Parker, Rachel Minkin, and Jesse Bennett, “Economic Fallout From COVID-19 Continues To Hit Lower-Income Americans the Hardest,” Pew Research, September 24, 2020.
Research for this brief is based partly upon health care claims data compiled and maintained by FAIR Health, Inc. KFF is solely responsible for the research and conclusions reflected in this brief. FAIR Health, Inc. is not responsible for any of the opinions expressed in this brief.
Issue Brief
Zach Cooper, “High Prices Drive High Health Care Spending In The US, But So Too Do Other Factors: A Response To Anderson And Colleagues,” Health Affairs, January 14, 2019.
Centers for Medicare and Medicaid Services. 2019. National Health Expenditures 2018 Highlights. Washington, D.C.: Centers for Medicare and Medicaid Services. https://www.cms.gov/files/document/highlights.pdf
Benjamin Sommers, “Who Really Pays for Health Insurance?” Int J Health Care Finance Econ 5, 89–118 (2005). https://doi.org/10.1007/s10754-005-6603-5; Daniel Arnold and Christopher Whaley, “Who Pays for Health Care Costs?” Santa Monica, CA: RAND Corporation, 2020. Available at: https://www.rand.org/pubs/working_papers/WRA621-2.html; Katherine Baicker and Amitabh Chandra, “The Labor Market Effects of Rising Health Insurance Premiums,” Journal of Labor Economics 2006 24:3, 609-634.
David M. Cutler and Fiona Scott Morton. “Hospitals, Market Share, and Consolidation.” JAMA vol. 310 no. 18 (November 13, 2013); Brent D. Fulton. “Health Care Market Concentration Trends In The United States: Evidence And Policy Responses.” Health Affairs 36, no. 9 (September 1, 2017): 1530–38. https://doi.org/10.1377/hlthaff.2017.0556.
Brent D. Fulton. “Health Care Market Concentration Trends In The United States: Evidence And Policy Responses.” Health Affairs 36, no. 9 (September 1, 2017): 1530–38. https://doi.org/10.1377/hlthaff.2017.0556.
MedPAC, March 2020 Report to the Congress: Medicare Payment Policy, March 13, 2020.
MedPAC, March 2020 Report to the Congress: Medicare Payment Policy, March 13, 2020. See table 4-2.
MedPAC, March 2020 Report to the Congress: Medicare Payment Policy, March 13, 2020.
HHS, “HHS Launches COVID-19 Uninsured Program Portal,” HHS press release, April 27, 2020; 85 FR 71142.
Washington State Health Care Authority, “Cascade Care FAQ,” Washington State Health Care Authority, January 2020. Available at https://www.hca.wa.gov/assets/program/cascade-care-one-pager.pdf
Chris L. Peterson and Dale N. Schumacher, “How Maryland’s Total Cost Of Care Model Has Helped Hospitals Manage The COVID-19 Stress Test,” Health Affairs, October 7, 2020.
Lane Koeing, et al, “The Impact of Medicare-X Choice on Coverage, Healthcare Use and Hospitals,” KNG Health Consulting, March 12, 2019. Available at: https://www.aha.org/system/files/2019-03/the-impact-of-medicare-X-choice-final-report-2019.pdf; Jeff Goldsmith, Jeff Leibach, and Kurt Eicher, “Medicare Expansion: A Preliminary Analysis of Hospital Financial Impacts,” Navigant. Available at: https://americashealthcarefuture.org/wp-content/uploads/2020/03/Navigant_Medicare-Expansion-Hospitals.pdf
Congressional Budget Office, "How CBO Analyzes the Costs of Proposals for Single-Payer Health Care Systems That Are Based on Medicare’s Fee-for-Service Program,” Working Paper 2020-08, December 2020.
MedPAC, March 2020 Report to the Congress: Medicare Payment Policy, March 13, 2020. Available at: http://www.medpac.gov/docs/default-source/reports/mar20_medpac_ch4_sec.pdf?sfvrsn=0
Darren Lubotsk and Craig A.Olson, “Premium copayments and the trade-off between wages and employer-provided health insurance,” Journal of Health Economics, Vol. 44, December 2015, Pages 63-79; Jeffrey Clemens and David M. Cutler, “Who pays for public employee health costs?” Journal of Health Economics, December 2014;38:65-76; Paige Qin and Michael Chernew, “Compensating wage differentials and the impact of health insurance in the public sector on wages and hours” Journal of Health Economics, December 2014;38:77-87; Jonathan T. Kolstad and Amanda E. Kowalski, “Mandate-based health reform and the labor market: Evidence from the Massachusetts reform,” Journal of Health Economics, May 2016;47:81-106; Craig A. Olson “Do Workers Accept Lower Wages in Exchange for Health Benefits?” Journal of Labor Economics, April 2002;20: S91-S114; The Incidental Economist, “Premium-wage tradeoff literature review: The public sector,” Dec. 10, 2015, available at: https://theincidentaleconomist.com/wordpress/premium-wage-tradeoff-literature-review-the-public-sector/; The Incidental Economist, “The economic theory of premium-wage tradeoffs,” April 12, 2016, Available at: https://theincidentaleconomist.com/wordpress/the-economic-theory-of-premium-wage-tradeoffs/; The Incidental Economist, “The premium-wage tradeoff in the private sector,” April 13, 2016, Available at: https://theincidentaleconomist.com/wordpress/the-premium-wage-tradeoff-in-the-private-sector/.
KFF, “Cost-Sharing for Plans Offered in the Federal Marketplace, 2014-2021,” Jan. 15, 2021, Available at: https://www.kff.org/slideshow/cost-sharing-for-plans-offered-in-the-federal-marketplace/.
Individuals can deduct health care costs (including premiums) above 7.5% from their federal taxes. See Internal Revenue Service, “Topic No. 502 Medical and Dental Expenses,” Jan. 20, 2021, Available at: https://www.irs.gov/taxtopics/tc502.; Individuals who are self-employed may be able to deduct their entire health insurance premium. See Internal Revenue Service, “Publication 535 (2019), Business Expenses,” March 5, 2020, Available at: https://www.irs.gov/publications/p535#en_US_2019_publink1000208843
Liu, Jodi L., Zachary M. Levinson, Nabeel Shariq Qureshi, and Christopher M. Whaley, Impact of Policy Options for Reducing Hospital Prices Paid by Private Health Plans. Santa Monica, CA: RAND Corporation, 2021. https://www.rand.org/pubs/research_reports/RRA805-1.html.
This change impacted the outpatient departments that had been grandfathered from changes under the Bipartisan Budget Act of 2015 that switched Medicare reimbursement for new, off-campus hospital outpatient departments to rates based on the physician fee schedule, which had the impact of lowering reimbursement for those new facilities.
Federal Register Vol. 84, No. 218.
Mark Miller, “Hospital Policy Issues,” MedPAC, July 22, 2015. Testimony before House Ways and Means Committee. Available at: http://www.medpac.gov/docs/default-source/congressional-testimony/testimony-hospital-policy-issues-ways-and-means-.pdf?sfvrsn=0
Calculated using Table 01 National Health Expenditures and Selected Economic Indicators, Levels and Annual Percent Change: Calendar Years 2012-2028, available at: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected
MedPAC, March 2020 Report to the Congress: Medicare Payment Policy, March 13, 2020 (see page 61).
MedPAC, March 2020 Report to the Congress: Medicare Payment Policy, March 13, 2020.
Health Care Costs Institute, “2018 Health Care Cost and Utilization Report,” February 2020.
Katherine Baicker and Amitabh Chandra, “The Labor Market Effects of Rising Health Insurance Premiums,” Journal of Labor Economics 2006 24:3, 609-634.
Drew Desilver, “For most U.S. workers, real wages have barely budged in decades,” Pew Research, August 7, 2018.
HHS, “HHS Launches COVID-19 Uninsured Program Portal,” HHS press release, April 27, 2020; 85 FR 71142.
Methods
Agency for Healthcare Research and Quality, Center for Financing, Access and Cost Trends, “2019 Medical Expenditure Panel Survey - Insurance Component,” Available at: https://meps.ahrq.gov/data_stats/summ_tables/insr/national/series_4/2019/ic19_iva_b.pdf. To determine the average contributions by employers and employees we summed the amounts contributed by employers and employees for single and non-single coverage for those in the private, state, and local government sector. On average employers contributed 73% of total costs and employees contributed 27%. This is slightly higher than the 72% the federal government contributes toward the most commonly chosen plans in the federal employee health benefits program.