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Health Cuts May Shift Cost To Workplace Businesses, Workers Fear They’ll Have To Pay Difference In Federal Spending

Sat., Nov. 4, 1995

Businesses tallying the effects of projected cuts in government health care spending are beginning to worry that they will have to help make up the difference.

At the heart of their concerns is cost-shifting - the notion that as projected Medicare and Medicaid spending shrinks, hospitals and doctors will demand that employers and their insured workers pay a greater share of health care costs.

Economists and Washington business lobbyists warn that millions of working people and companies could end up paying more for health care and that many people who work for small businesses could lose their insurance altogether.

“If you cut your price to one customer, you increase it to another,” said Raymond Brusca, a vice president of Black & Decker Corp., the maker of power tools. “Whatever gets squeezed out on the federal side through budgetary constraints will be shifted to the non-public sector. All we’re doing is shifting dollars around.”

Michael Rourke, a senior vice president with the A&P; grocery chain, said, “If these cuts go through, there will be an increase in insurance premiums, because hospitals and other health care workers will have to cover the costs now provided by Medicare.”

By one estimate, the increase in employers’ costs from the projected $270 billion reduction in Medicare and Medicaid spending over seven years would be $90 billion. That figure would increase if dwindling government payments result in the closing of some public hospitals, pushing more of the uninsured and underinsured into private-sector hospitals that in turn would tack the added costs onto private payers’ bills.

Republican sponsors of the spending restraints dispute the predictions of costshifting. Rep. Bill Archer of Texas, chairman of the House Ways and Means Committee, said he was confident that the program he has shepherded would not result in costs being transferred to the private sector.

He added that limits on malpractice claims against doctors and hospitals, along with new hospital- and doctor-sponsored health plans encouraged by the Republican legislation, would produce “efficiencies” that would make cost-shifting less likely.

In general, business organizations have been among the prime supporters of the Republican program to shrink the federal government and cut taxes. Groups like the U.S. Chamber of Commerce, the National Association of Manufacturers and the Business Roundtable have not wavered in their endorsements.

Lobbyists for business groups say most of their clients are more concerned about reducing the deficit and putting a lid on the Medicare payroll tax than the possibility of higher health care costs.

Their clients, though, are just beginning to hear about the increased costs that the Medicare and Medicaid changes may shift onto employers and employees - in particular, the 55 million people covered by traditional fee-for-service health plans.

“The containment of Medicare costs, the way they’re going after it, is a double-edged sword,” said Ken Heller, president of Nutech Environmental Corp., a Denver company with nine employees. “Reducing payments to doctors and hospitals will encourage cost-shifting to small business.”

That has been the pattern in the wake of previous efforts to curtail Medicare spending. In 1993, for example, hospitals said they absorbed losses of 11 percent on treating Medicare beneficiaries and 7 percent on Medicaid patients, but made up the losses by charging private payers a 29 percent markup.

“We are likely to see health care premium increases back in the double digits as a result of this legislation,” said John Galles, president of National Small Business United, an advocacy group in Washington.

The yearly increase in employer health costs per employee reached 18.6 percent in 1988 and stayed above 10 percent for the next five years. But that trend reversed and costs actually fell in 1994, as medical inflation abated and employers moved more workers into lower-cost health plans, according to Foster Higgins, a benefits consulting firm.

Many corporate health care experts note that the Republican plan, after much internal debate, does not include strong financial incentives to encourage elderly people to switch to HMOs and other managed-care health plans.

“Unless Congress gives Medicare patients an incentive to move from fee-for-service to more cost-efficient managed care, the patients won’t make the move and that will under-cut efforts at reform,” said Jack Stair, a senior consultant with E.I. du Pont de Nemours, who studied the issue for the Financial Executives Institute, a business advocacy group.

Cole Tremain, a vice president of LTV Corp., the big steel maker, said the Medicare cutbacks were “not being matched by reduced benefits or increased costs to retirees in higher deductibles or co-payments” that might make people think twice before visiting a doctor.

Employees who are still working will come under renewed pressure from their companies to move into health maintenance organizations and other managed-care health plans. And many experts say that traditional fee-for-service health plans will lose even more members.

For some procedures, LTV already pays about 50 percent more, on average, than Medicare. For example, LTV pays $33,519 for a coronary bypass with catheterization, while Medicare pays $21,455, Tremain said. By one estimate, with the projected impact of cost-shifting, the same procedure could cost the company $34,693 seven years from now.

“Our real concern is that Congress not make an already serious problem into one that would be a grave issue for American industry,” Tremain said.

A study by Lewin-VHI, a health care research firm based in Alexandria, Va., concluded that about 45 percent of the projected reductions in Medicare payments to hospitals and doctors, or at least $66 billion, would be shifted. Those shifts would add 2.3 percent to the costs for employers, employees and selfinsured individuals, the firm concluded.

The Lewin study was done for the National Leadership Coalition on Health Care, a group of employers, unions and consumer and medical groups. Other estimates of the potential shift range from 25 percent to 50 percent.

An estimated $24 billion would be cut from projected Medicaid spending and passed on to private payers, the Lewin study said. This would add about 3.2 percent to their costs. “We low-balled the Medicaid estimate, because of the uncertainty” as to what the states would do, said John Sheils, a vice president of Lewin-VHI.

The study said that employers, in turn, would require their employees to absorb much of the increased costs “in the form of reduced wages,” truncated or denied pay raises, and less generous health coverage.

About 523,000 persons would lose their insurance coverage entirely in 2002, the final year of the proposed government spending restraints, the study said. Medicaid cuts might leave 5 million more without insurance.

Even without the cost-shifting phenomenon, Stephen H. Long, an analyst with the Rand Corp., said the number of uninsured Americans would surge to 55 million from 41 million as the population grows, if employers continue present trends in health coverage.

“If Medicaid is cut, the number would go even higher,” he said.

Most experts said companies with employees enrolled in health maintenance organizations and other managed health plans would be relatively insulated from the government spending shifts, because they would have the upper hand in negotiating rates with hospitals and medical groups.

But even companies well protected by managed care arrangements are likely to face increases if the number of uninsured people grows. “The uninsured are going to need care, and those costs are going to be picked up by the businesses and citizens that pay health care bills,” Walter B. Maher, a Washington-based health care expert with Chrysler Corp., said.

Small employers are scrambling to join health care purchasing groups that would give them more bargaining power, but such groups are scarce in many parts of the country. Indeed they are prohibited in some states.

“The employer with three or four employees is still having a hard time out there, shopping for health care,” said Mark Isakowitz, a lobbyist for the National Federation of Independent Business.

But he said his group had been more concerned about the prospect of increases in payroll taxes to pay for Medicare than about health care cost issues. Very small businesses often pay more in payroll taxes than in income taxes. “Providing health insurance is voluntary,” he said. “Payroll taxes are not.”

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