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Tuesday, February 24, 2009

Our current health care system or how your premiums are going to increase

There is one part of the US health care system that is unfortunately very systematic. That is how insurance premiums or what you or your employer pay for insurance are related. Medicare (CMS) announced that the amount that health plans will receive for Medicare Advantage increased 0.5% for 2010 plans. Most thought that it would increase 3%-5%. While getting an increase for any kind of money these days would seem like cause for celebration, medical costs typically increase 5% each year. Who ever is selling medical supplies from 3-D heart scanners to bed pans, drugs, or providing high tech medical care is getting the bigger raise.

This means that Medicare Advantage won't cover as much of the medical costs as it did last year. Medicaid doesn't cover a lot so that leaves commercial insurance or the private sector. In order to cover the short fall of Medicare Advantage, providers, heart scanner makers and bed pan suppliers are going to ask commercial insurance plans for more money which means higher prices.

The systematic approach applies to the uninsured as the more people there are who are not likely to pay as much, the more other insurance plans have to pay. It's called the cost shift and given how the types of insurance coverage interrelate so precisely, that's the most systematic system that we have in health care today.

While this sounds depressing and I also sound like an insurance lobbying group by pointing how a seemingly unrelated event will raise premiums, I think that it's an important part of the health care system to understand. Changes in costs in one part of the system impact the others just like when you squeeze a balloon. The solvency of the Medicare trust fund which I described in this post is often viewed as a separate problem but it's more of a canary in coal mine that is indicative of the larger systematic forces in health care. Maggie Mahar, my new favorite health care blogger has an excellent post on the systematic issues of the Medicare trust fund. It could be summarized that when public programs like Medicare or Medicaid cover less, health care delivery has to raise prices that commercial insurance pays to cover the short fall.

Overall, I can't say that I am surprised that the Obama administration reduced the payments to Medicare Advantage plans given the rhetoric that it's an example of a program that doesn't work. Overall the reduction was less than had been mentioned and gives health plans time to plan for the future. Or wait for health care reform to come and completely change our current system. I have trouble planning in more than 3 year horizons since I think that the health care system will be dramatically different in 3 years.

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