HCW Benefits Blog

Contributor:
Steve Byrd, Consultant
Hill, Chesson & Woody

On Dec. 15, 2010, President Obama signed the Medicare “Doc Fix” bill that delays, until 2012, a 25-percent pay cut for doctors accepting Medicare and Tricare insurance plans. The signed bill freezes reimbursement rates at the current level, which is good news for the oldest of the Baby Boomers as they start qualifying for Medicare in 2011, as well as for military families and retirees whose Tricare doctor reimbursement payments are tied to the current Medicare system.

This is good news for these healthcare consumers because reducing reimbursements would have encouraged doctors, hospitals and other providers to stop treating Medicare and Tricare patients. At some point, Medicare and Tricare reimbursements drop below medical care providers’ variable costs of doing business.  Once that happens, providers can’t contribute to their fixed costs at all by seeing these patients.  When you can’t cover any of your fixed costs or even cover your full variable costs, then it becomes a poor business decision to see these patients. The result is detrimental to the shrinking networks for Baby Boomers.

Why This is Important for Employers
Medicare is the leading payer for hospitals, accounting for 35 to 55 percent of revenue overall. When the government cuts reimbursements, doctors and hospitals will be forced to recoup those funds elsewhere. Most likely, they will push harder to gain greater reimbursements from health insurance companies, driving up health insurance premiums for employers. This effectively becomes an increased tax on employers to provide medical coverage.

If cuts in doctors’ payments do eventually take place, it could create a greater burden on Baby Boomers as they become eligible for Medicare. Then, more questions arise, such as:

• Should an employee migrate off a group-sponsored program to enroll in other government-sponsored plans like Medicare or Tricare?
• What about seniors, whose networks are shrinking as more and more doctors close their doors to new Medicare patients out of fear of lost revenues?
• How will an employer communicate the new requirements and options to employees, since the burden of explaining the various options inevitably falls upon them?

HCW Viewpoint
This is a no-win situation for health care consumers. By not cutting the reimbursement rates to doctors, reform is going to be more expensive than originally planned because the government’s financial projections were contingent upon cutting Medicare reimbursement rates. Therefore, the cost of healthcare reform just went up.

If the cuts had been applied this year, employers would have been further compromised by higher health care insurance premiums to cover the lost reimbursement revenues to providers.

At the end of the day, simply reducing the cost of health care per unit of service alone will not solve the health care cost issues. Improved patient outcomes, more efficient delivery of care and reduced health risk factors are all components that must be combined with lower costs per unit in order to lower the total cost of health care.

The “shell game” of moving costs from one population to another is not an effective course of action in reducing the health care price tag.

For more information on this topic, contact an HCW consultant or visit the following links:

• Obama Signs 'Doc Fix' Bill
• New Medicare Cuts Will Force Hospitals to Plug Major Revenue Leak
• House Passes Bill Averting Cut in Medicare Reimbursements
• House vote delays cut in Medicare pay for doctors
• Seniors lose out with payment cuts to primary-care doctors