According to a report from the Congressional Budget Office (CBO), commercial payers are witnessing higher healthcare spending than fee-for-service Medicare due to increasing prices of various services and resources. CBO estimates that from 2013 to 2018, commercial insurers’ spending per person on inpatient and outpatient hospital care and physicians’ services grew by an average of 3.2% a year.
- Reasons for spike in personal healthcare spending: Prices for above period rose by around 2.7% a year making it costlier for commercial insurers. CBO estimated the increase in the prices paid by commercial insurers per unit of service (visits, procedures, and admissions) from the growth of per-person spending and the quantity of services. Utilization grew by less than 0.5% per year during the 2013–2018 period. Per-person spending grew more slowly for the Medicare FFS programme than for commercial insurers—by 1.8% a year.
- Mechanism determining Medicare’s prices: The prices that the Medicare FFS programme pays to providers are determined through laws and regulations. The programme uses various payment schedules for different kinds of services. For hospitals’ services that are covered by the inpatient or outpatient prospective payment systems, the amount that Medicare pays hospitals is predetermined. That amount is based on a flat base-payment rate. Medicare also makes hospital-specific adjustments for inpatient services at hospitals. It also makes “outlier payments”—additional payments for cases that are extraordinarily costly—for inpatient or outpatient services.
- Commercial insurers’ prices: Negotiations between individual providers or provider groups and insurers decide the amount that commercial health insurers pay to in-network providers. Sometimes, providers can negotiate higher prices by threatening to stay out of an insurer’s network. The deals also involve the basis of payments. Payments for in-patient care differ for each insurer and hospital. Physicians are often paid by commercial insurers using the same structure as the Medicare FFS programme, but provider groups negotiate a multiplier that is applied to Medicare’s prices. The fee-for-service Medicare prices grew by 1.3%.
- Leverage payers can enforce: Payers have many avenues, apart from market share, to enhance their presence in the field. They can use their own unique expertise, care quality and less shoppable services to have a lead in the bargain. The input prices can also impact overall of service, product, and procedure prices in healthcare. The hospital wages and the input prices like providers’ wages and malpractice insurance premiums were key in boosting commercial payers’ prices.
- Health plans’ impact on people: The price jump has deep impact for citizens in employer-sponsored health plans, which cover almost half of the country as of 2019. The higher spending led to job-creators realizing truncated revenues and slow rise in the employees’ income. The higher healthcare spending also leads to higher allocation of federal subsidies.