In a recent article in Health Affairs, health economist James Robinson reveals that in areas where hospitals consolidate and enjoy a larger market share, providers are more likely to charge higher prices, as low competition gives them a monopoly in delivering patient care in the region.
The lack of competition allows hospitals and other providers to raise the sticker price for the privately insured as reimbursements from Medicare and Medicaid fall. Economists call this “cost shifting,” when a lower payment from one group is made up for by a higher payment from another group. The study finds that the growing trend in hospital consolidation is to charge private payers more to make up for public payers’ lower reimbursement levels.
Obamacare will cause this cost shifting to become more pronounced, thus raising premiums for the privately insured. As Jordan Rau of the Health Affairs blog notes, the trend toward hospital consolidation “may have been accelerated by the new health law.” One example is the provision regarding Accountable Care Organizations (ACOs). While the idea behind ACOs is to encourage doctors and hospitals to partner up in caring for patients and share financial risk to facilitate better coordinated care, they may instead create an unfair competitive advantage for larger organizations that would put small and mid-sized practices at a particular disadvantage. The consequences of imposing these bureaucratically approved, complex organizations would be reduced competition, less provider accountability, less choice for patients, and greater cost shifting onto private payers.
Furthermore, Obamacare makes drastic cuts to Medicare provider payment rates, which—if they occur as written into law—would pay providers of inpatient care half that of private payers and 80 percent of Medicaid by the end of this decade. These cuts will almost surely be passed on to private payers in the form of higher premiums. In addition, Obamacare’s failure to address the scheduled reduction in Medicare physician payments would lead the program to pay doctors 60 percent of what private payers pay starting next year.
But that’s not all. As Medicare Actuary Richard Foster has noted, if payment rates are cut that low, many health care providers that cater exclusively to Medicare patients will go out of business. Seniors will have a tremendously difficult time finding a provider that will accept Medicare, just as Medicaid beneficiaries currently face huge obstacles to receiving care.
Obamacare not only makes care less affordable for those still in the private market, but it also will make care harder to find for seniors on Medicare.
Daniel Graulich is currently a member of the Young Leaders Program at The Heritage Foundation. For more information on interning at Heritage, please visit: http://www.heritage.org/about/departments/ylp.cfm