Hospitals push back as state employee plans index reimbursement rates to Medicare

States. They’re just as perplexed as the rest of us over the ever-rising cost of health care premiums. Now some states are moving to control costs of state employee health plans. And it’s triggering alarm from the hospital industry. The strategy: Use Medicare reimbursement rates to recalibrate how they pay hospitals. If the gamble pays off, more private-sector employers could start doing the same thing. “Government workers will get it first, then everyone else will see the savings and demand it,” said Glenn Melnick, a hospital finance expert and professor at the University of Southern California. “This is the camel’s nose. It will just grow and grow.”

Source: Health Plans For State Employees Use Medicare’s Hammer On Hospital Bills | California Healthline

If this trend picks up as some here predict, it would upset a well established hospital financing scheme. It’s based on supplementing Medicare and Medicaid care reimbursements with commercial employer group medical benefit plans to balance out revenues to cover costs. So it’s no surprise hospitals are pushing back, particularly given the prospect that large private sector employer plans that provide the bulk of those revenues could follow the lead of state employee benefit plans.

New medical insurance stress fractures open up amid continuing cost pressures

“Traditional health plans have not been able to stem high cost increases, so people are tearing down the model and trying something different,” said Jeff Levin-Scherz, health management practice leader for benefit consultants Willis Towers Watson. Now some insurers — such as Blue Cross Blue Shield of North Carolina and a Minnesota startup called Bind Benefits, which is partnering with UnitedHealth Group — are coming up with their own novel offerings. Insurers say the two new types of plans meet the ACA’s rules, although they interpret those rules in new ways. For example, the new policies avoid the federal law’s rule limiting consumers’ annual in-network limit on out-of-pocket costs: one by having no network and the other by calling additional charges premiums, which don’t count toward the out-of-pocket maximum. But each plan could leave patients with huge costs in a system where it is extremely difficult for a patient to be a smart shopper — in part, because they have little negotiating power against big hospital systems and partly because illness is often urgent and unpredicted.

Source: New Health Plans Expose The Insured To More Risk | California Healthline

The continuing struggle to bend the cost curve seeks to harness market forces on the buy side of the market. Here the idea appears to be to increase the separation between payers and patients in the hopes patients will exert buy side market forces to drive down medical costs. That theory derives from retail industries where there’s flexible demand and spending is a far more a consumer discretionary matter. It’s highly unlikely to translate to medical services.