True cost of Medicaid is 2X headline cost?

I recently attended a talk by the CEO of a hospital with $2.6 billion in annual revenue. She noted that patients on Medicaid are 40 percent of the census and that Medicaid pays only 50 percent of the cost of treatment. In order to at least break even at this not-for-profit, therefore, she has to charge privately insured patients enough extra to make the books balance.

(A doc who was formerly Physician-in-Chief of this hospital and then president of another hospital said “you can’t make money doing research” and, financially at least, “teaching is hopeless”.)

This might explain why apparently healthy people are paying such big premiums. “Employer Health Insurance Is Increasingly Unaffordable, Study Finds” (nytimes):

A relentless rise in premiums and deductibles is putting insurance out of reach for many workers, especially those with low incomes.

Instead, she quit her job last summer so her income would be low enough to enroll in Medicaid, which will cover all her medical expenses. “I’m trying to do some side jobs,” she said.

The average premium paid by the employer and the employee for a family plan now tops $20,000 a year, with the worker contributing about $6,000, according to the survey. More than a quarter of all covered workers and nearly half of those working for small businesses face an annual deductible of $2,000 or more.

Annual Medicaid spending is supposedly roughly $600 billion per year, about 3 percent of GDP. But if hospital-related charges are the majority of Medicaid costs and, in fact, the hospitals are recovering half of their expenses from unrelated privately insured patients, the true cost of Medicaid to Americans is closer to $1 trillion per year (about 5 percent of GDP, meaning that people who work 40 hours/week have to stay at work on Friday from 3-5 pm to pay for Medicaid).

Note that this off-books funding for Medicaid is done in a regressive manner since the money is extracted silently from all Americans with employer-affiliated or other private health insurance. I.e., the cost of a health insurance policy also contains a hidden tax to pay for about half of Medicaid (and also to pay for the uninsured who throw out the hospitals’ $100,000+ bills?).

[Anecdotally, we know plenty of folks in Massachusetts who are careful to refrain from earning more W-2 wages than the thresholds for public housing and MassHealth (Medicaid) eligibility.]


10 thoughts on “True cost of Medicaid is 2X headline cost?

    • That’s a good point, Bruce. Considering hospitals specifically, there’s a lot of waste and extravagance baked into hospital costs.

      The cost of a hospital stay in the United States averaged $5,220 a day in 2015 — and could be as high as over $17,000, compared with $765 in Australia. In a Rand study published earlier this year, researchers calculated that hospitals treating patients with private health insurance were paid, overall, 2.4 times the Medicare rates in 2017, and nearly three times the rate for outpatient care. If the plans had paid according to Medicare’s formula, their spending would be reduced by over half.

      Most economists think hospitals could do just fine with far less than they get today from private insurance.

  1. “why does the US spend more than every comparable country?”
    1) pharma costs
    2) In comparable countries, physicians are well-paid professionals, but not entitled to be wealthy
    3)Hospitals are much more utilitarian
    I once told a doctor friend that I had discovered the deep hidden course of life: “We accumulate all we can for about 75 years, then spend a few years giving it all to you.”
    Sadly, he died before he could collect from me.

    • 4) insurance company overheads + profits
      5) medical billing industry
      6) U.S. allows advertising of drugs

    • So if everyone from the doctors to the pharma companies to the hospital administrators to the insurance companies to the billing companies is gouging those with private insurance, and Medicare is negotiating fair market prices in line with the rest of the world, why is single payer healthcare for the US a bad idea? The current situation is already corrupt and costly, wouldn’t we be better off with more transparency?

    • It’s not a bad idea, unless you’re making money off the current system. Since the Supreme Court opened up unlimited bribery of elected officials ( Citizen’s United ), it’ll likely never change.

  2. From what I see the hospitals are pretty eager to get those really sick Medicaid patients into their system. They are even willing to subsidize the helicopter transport. So the financials cannot be all that bad.

  3. > Medicaid pays only 50 percent of the cost of treatment

    This is just “hollywood accounting” as done by these “non-profit” hospitals. They just can’t bilk medi-caid/care quite as much. As far as I understand the situation hospitals and medical groups are entirely free to reject medi-care/caid payments. They’re obviously not taking “real” losses on these services.

    • Hospitals can reject emergency patients? This is a news.
      Leave alone health system that produces great health outcomes for large classes of hard to cure deceases, such as cancers, were time to treatment and pharmacology are critical.
      Don’t like it – don’t use it, nobody is required to pay for it.
      Become a heath tourist or cure yourself with web – based treatment.

Comments are closed.