Now that we’ve officially welcomed in the new year, and Barack Obama’s Inauguration draws nearer, the most common topics on the American mind are “change, reform, and resolution.” Health care reform was an extremely popular topic during the 2008 Presidential election, and it’s been wildly promoted since Obama’s win. But where will he begin? There are so many different areas of the health care and health insurance systems, and most of these areas could use a good reform. It certainly will be interesting to see where Obama and his administration decide to start. Regardless, change needs to happen. If the systems are left as they are now, they will eventually spin out of control, creating a system of health care that can only be afforded by the wealthy (a diminishing population in the U.S. these days). While reform possibilities are endless, there are a few key areas that many believe to be the major causes of instability in the health care system. We would like to discuss one of those areas with you today.

It has long been discussed that Medicare and Medicaid pay less for medical services than the average patient with private health insurance. This underpayment creates a payment gap to hospitals, which naturally needs to be covered by someone. And unfortunately, it gets passed on to privately insured consumers and employers, who are already struggling to afford health care coverage. But the cost-shifting can’t be that significant, right?

Actually, the statistics are nearly unbelievable:

• In 2006, the hospital cost shift from Medicare was $34.8 billion & $16.2 billion from Medicaid

• In 2007, the physician cost shift from Medicare was $14.1 billion for Medicare & $23.7 billion from Medicaid

This cost shifting means that every year, private health insurance providers and consumers are covering a huge deficit of several billions of dollars, simply because Medicare and Medicaid don’t want to pay equal amounts for hospital services.

A report released in December by Milliman Inc. estimated that the annual health care spending for an average family of four is $1,788 higher than it would be if Medicare, Medicaid, and private employers paid hospitals similar rates. That’s incredible! This cost shifting adds approximately 10.6% to the average premium for a family of four, and also increases the amount families will pay for coinsurance and deductibles. And this cost shifting doesn’t just hurt the families – employers pay a significant portion of the share as well. And these amounts don’t even include the other costs we already cover, such as those from charity care given to those without health insurance, or for the medical debts incurred by people who simply cannot afford their own health care.

It actually makes us feel a bit sorry for all the complaining we do about health insurance providers – we truly believe that they consistently try to provide affordable health insurance. But disparities like this make it extremely difficult for them to keep insurance costs low.

When it comes down to it, the average health care consumer pays for a lot more than just their own health care. When you pay for treatment of your son’s broken leg, you may actually be paying for someone else’s colonoscopy, and maybe even a bit of someone’s shoulder surgery.

As health care costs continue to rise, and health insurance becomes increasingly more unaffordable for the average American family, the Medicare and Medicaid underpayments need to be considered for reform. It’s not fair that private health insurance patients and their employers are forced to cover these disparities.