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Why Will Employers’ Healthcare Costs Rise by Nine Percent?

June 18, 2010
12:19 pm

A report from the PricewaterhouseCoopers (PwC) Health Research Institute says that U.S. employers will see their healthcare costs increase by nine percent in 2011. 

What’s instructive, in terms of setting future health policy, is why those costs are increasing.

According to PwC, hospital and physician costs will account for 81 percent of the health insurance premiums that employers are paying.  And the reason those costs are escalating is because hospitals are being forced to shift more costs onto the backs of private payers and employers due to Medicare underpayments.  PwC points out that this cost shifting is the primary driver behind higher healthcare costs for businesses.

I’ve always found it mind-boggling when policymakers argue that we can improve our healthcare system and our economy by moving more Americans into public coverage programs.  With these programs paying less than the actual cost of delivering healthcare, someone else – employers and private payers, predominantly – has to pick up the slack.  PwC points out that, with Medicare reducing payment rates to hospitals in 2011, this cost-shifting will exacerbate.  This is not a positive development in an economy struggling to create jobs.

Cyril F. Chang, director of the Methodist Le Bonheur Center for Healthcare Economics, said in HealthLeaders Media that policymakers are trying to reduce healthcare expenditures by reducing Medicare payments.  “Right now,” he said, “it seems to me the major instruments they are using to slow down the growth of cost are Medicare cutbacks.”

But we already know what results from this approach.  Costs aren’t reduced, but merely shifted over to private payers.  The real solution must come from meaningful healthcare delivery and payment reforms.  As discussed in this space previously, many private sector providers are already succeeding with innovative delivery reforms.  The challenge is to transform these localized successes into national policy, a process that needs to be placed on the fast track.

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