The Secret of American Health Care

Consider the following simple question: How much does it cost to stay in the hospital when someone is sick? Until 1983, the answer was simple: You, your insurer, or Medicare paid the hospital on a ?per diem? basis, meaning that the hospital charged roughly the expense they incurred, plus a small administrative fee. You paid for what you got. In 1983, however, Medicare suddenly changed everything. The agency adopted the ?prospective payment system,? which decoupled payments from the actual cost of care in the hospital. In other words, they suddenly paid a fixed price that had nothing to do with what happened in the hospital. In the beginning, administrators loved this since the fixed prices were so high that hospitals had an average 13-percent margin on Medicare patients. Soon enough, however, the payments had fallen behind inflation, and by 1991, hospitals faced an average margin of minus 2.4 percent. They responded rationally to this crisis by jacking up list prices for private insurers like Blue Cross or Aetna in a redistributive practice known as ?cost shifting.? In 1997, the Balanced Budget Amendment further lowered Medicare payments, and soon private insurers were paying 20 to 30 percent higher rates than Medicare. In effect, this practice amounts to an annual tax of about $922 per privately insured family, which defrays the cost of those on public insurance. (A strange corollary: Uninsured or ?self-pay? patients get charged two- to threefold higher sticker prices than insurers pay, because no one?s negotiated lower rates for them.)

Source: http://feeds.slate.com/click.phdo?i=ef5d199c922683c9d5967c13cc3cf2ce

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