That’s A Health Care Cost Shift!!!
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Ah — the dreaded “cost shift.” If you really want to rain on someone’s parade in health care, call some idea they have about financing or care delivery or coverage or payment “a cost shift,” and then watch people pile on. You see, in health care speak, cost shifts are unfair and inequitable (especially if someone else is shifting their costs onto me!). But my view on this is different. I think cost shifts are everywhere — in every industry and every line of work. Some are good and some aren’t, but the notion that a cost shift is somehow immoral or wrong — or unique to health care — is simply not true. For example…
1) Every healthy person pays more for health insurance each year than they get back in incurred medical expenses. That’s a cost shift — from healthy people to sick people. Very few people would call that a bad thing.
2) People with tiered pharmacy co-pay benefits pay slightly more for brand name medications than they pay for generics. That’s a cost shift — from pharmaceutical manufacturers to consumers. Again, very few people would call that a bad thing. The rise in tiered pharmacy formularies and generic prescribing has had more to do with reducing the increasing cost of pharmaceuticals than almost anything else.
3) If I buy a round trip plane ticket six months in advance on a non-refundable basis, I pay less than someone who buys their ticket the day of each flight — one way. That’s a cost shift. In this case, we all get transported from Point A to Point B — but I pay less because the airline could count on my ticket being purchased significantly before the actual flight took place. That’s why some people pay less for oil in the winter (because they paid for it on specific terms in advance) than others — who buy at the time of peak demand — and pay more.
There are other well known examples of cost shifting in health care that aren’t so easy to agree on. For example…
1) Medicare and Medicaid pay far less for most health care services than private plans pay. If private plans pay $100 for a particular health care procedure, it’s likely that Medicare pays somewhere between $85 and $95 for the same procedure, and Medicaid pays somewhere between $65 and $85. Some people would say that programs that serve the elderly, the poor and the disabled should pay less — so that those with health and money (relatively speaking) would pay more. That’s a cost shift — from the public sector to the private sector, pure and simple — and it’s worth billions of dollars in health care spending to both sectors, in each direction.,
2) Many employers still pay a percent of premium on the health plans they offer their employees. Some pay a flat amount for individuals and families, and let people buy up or buy down on benefit plans with their own money. Each approach allocates money differently between the employer and the employee, depending on the choices he/she makes. Which is cost-shifting? Some have rich plan designs and higher employee cost sharing on premium payments. Others have higher employer payments on premiums, but more cost sharing in the plan designs. Which is cost-shifting? Still other employers offer individual, two person, single adult/single child, and full family plans, while others offer just individual and family plans to choose from. Who’s cost-shifting, and how?
3) In most cases, if I go to a teaching hospital, I pay the same co-pay or deductible that I would pay if I went to a community hospital, even though most services, on average, cost about half as much at a community hospital as they cost at a teaching hospital. So — are people who use teaching hospitals shifting costs onto people who use community hospitals?
4) Mandated benefits raise the cost of health insurance — for everyone — and not everyone would choose every benefit mandate if they had a choice. Some people argue that mandated benefits would be too expensive if only those who needed them bought them (like IVF, for example), so everyone should pay a little more to make those benefits available to people who do use them. Okay, but that’s going to look like a cost shift to some folks.
The new year is coming, health care costs overall continue to climb (although more slowly than they have in years past), and everyone is talking about this cost shift and that one. Just remember, cost shifting is not necessarily a bad thing. Sometimes, it’s a trade — one expense for another — and requires someone to make a decision about how they would prefer to spend their health care dollars. I don’t think that’s a bad thing, do you?
So it’s a shell game - the cost shifts from employer to employee or person to person, or you choose the generic instead of the brand name, but even generic copays increase and the costs of healthcare overall continue to rise - mostly to the consumer at a rate that is far greater than their cost of living increases and once again it’s the middle income people who are getting squeezed hardest…. so when does something actually happen to reduce the costs or, at the very least hold it steady?
It seems that the cost shifts can only be a temporary solution to the problem before people start losing more than they can afford in order to cover their health care costs.
Kitty - First of all, thanks for writing. All thoughtful comments are appreciated. But I wouldn’t call it a shell game. Some costs are funded by premiums - paid by employers, taxpayers, and individuals - and some costs are funded by patients/users of the service. By itself, this is no different than the way it works for many, many other goods and services - home mortgages, heating oil, groceries, college educations - the list goes on and on.
I guess what makes health care different is the fact that most people would like it to be “free” - because it’s health care (and not something less important) - and the total cost keeps going up. It’s never going to be free - and it’s not free in other countries, either (see my blogs on my recent conversations with people from the UK). Someone’s paying somewhere for all of it.
I share your frustration over the rising price - and agree with you that it’s not sustainable. That’s why I’ve been so aggressive about promoting more public information on cost and quality. In the absence of good, publicly available information on cost and quality, we’ll end up with some other kind of “blunt instrument” approach to deal with rising costs. I’d prefer to avoid that.
Charlie,
I think some cost shifts are good and others are not so good. An individual who buys insurance at a price that properly reflects the claims risk inherent in his underwriting group is good. So is pricing that drives drug demand toward generics. So are non-refundable cheap airfares that allow airlines to practice yield management. All three of these, in the end, result in more efficient resource allocation. People don’t generally buy insurance expecting to collect more in benefits than they pay in premiums each year. Generic drugs save people money, while buyers of non-refundable airline tickets trade reduced travel flexibility for a lower price.
By contrast, when Medicare and Medicaid pay providers less than the full cost of healthcare services in the expectation that providers will make up the difference by charging private payers more, costs are imposed on the private sector without a Congressional vote to do so, without improving the efficiency of resource allocation and without giving anyone a choice in the matter including allowing Medicare beneficiaries to use their own money to insure that providers are paid enough to be willing to see them on a timely basis.
Price and quality transparency within the healthcare sector is between non-existent and woefully inadequate, but that is a whole separate discussion.
Barry - agree with you, but don’t know how to stop the public/private gaming you reference. I do think public reporting on payment would bring this issue to the surface - and force some kind of discussion about it, though.
Clearly, teaching hospitals are less efficient and more costly in the provision of care. It is a reality we accept to ensure good healthcare in our future and for our children. In an ideal world the amount of care provided by teaching hospitals on a state by state basis would roughly provide the number of physicians needed to sustain adequate turnover in that state. As you point out, healthcare is in many ways a state problem; hence, if a particular state shoulders a disproportionate amount of teaching, it susidizes the rest of the US. This is clearly the case in Massachusetts. In effect we are “cost shifting” the cost of training and research away from other states and to Massacusetts. This seems a noble yet fiscally unfair situation.
Charlie - For a physician in eastern Massachusetts there is even cost shifting at the health plan level. Tufts, HPHC and BCBS control the private plan market and the fees these plans pay to a physician can vary by large amounts. For example a PCP could see a patient from each of these three plans, bill a 99213 office code for the visit and despite delivering the same level of patient care they will receive different reimbursements from each plan that can vary by huge amounts. The physician’s office is being financially supported more by the higher paying plan than the lower paying ones. Further, if that PCP happens to be in Partners they will get an even higher reimbursement than the PCP across the street who may be part of another healthcare network. Let’s face it, until we have total transparency on what health plans pay physicians and hospitals (and what quality outcomes result from these physicians and hospitals) there is not enough information out there for consumers to make smart decisions and to level the playing field for providers who right now can get paid much higher rates even if they deliver lower levels of quality… a fact that was made clear by how local networks scored on the recent Mass Health Quality Partners “Statewide Comparitive Clinical Quality Report”. Networks that receive higher payments scored no better (or even worse on some quality measures) than other networks making one wonder why are they getting paid much higher rates for average or below average care?