Health Care 2020: Connecting the Dots

Part 1: The hidden health care tax

No one wants to talk about the average 87% tax you pay to fund the Minnesota health care system. If you have private health insurance, you pay this tax every time you see a medical professional or use a hospital.


Minnesota officials found that if you have private health insurance you pay on average 187% more for health care than someone else who is on Medicare.[i] This means that for every dollar a physician receives for a Medicare patient, you pay $1.87 if you have private insurance.[ii] 


When the government pays less for the same care than you do, and you pay more because they pay less, that is the definition of a tax.


Tax- def. (Merriam Webster)

  • a) “a charge usually of money imposed by authority on persons or property for public purposes
  • b) a sum levied on members of an organization to defray expenses”


Example: 


  • Dave is on Medicare. Dave sees Dr. Blue for an exam. The physician charges $250. Medicare allows, and Dr. Blue accepts $100 for this exam.
  • You have a private health insurance plan. You see Dr. Blue for an exam. The physician charges $250. Your health plan discounts the bill to $187, and Dr. Blue is glad to receive it. 


Compare the $100 Medicare allows to the $187 private insurance allows for the same service from the same physician. Why does the physician receive $87 more for you? Because the physician shifts some of the cost to you from the reduced Medicare payment. 


The extra $87 paid by you or your insurance acts like a tax – “a sum levied on members of an organization to defray expenses.” Medical professionals rely on this tax to ensure they can keep offering services to you and to others. All the members of your health plan pay more, because Medicare pays less for the same services. This is the hidden tax.


Think About It


How does the insurance company calculate the premium amount?


The premium covers the insurance company’s payment of claims and the cost of administering the health plan. By law,[iii] administration cost is limited to 15-20% of the premium. Claims make up 80-85% of premiums, and at least half of the cost of claims is the hidden tax.


If there was a way to eliminate the hidden tax, insurance premiums could fall by 40-50% - or more, in some locations.


Cost-Shifting


Medicare establishes the price it pays for just about every imaginable health care need. The amount Medicare allows is low compared to what private insurance pays. Medical professionals claim that the Medicare-allowed amount is, at best, breakeven and often below their cost.

 

Physicians, hospitals, and clinics insist that if they had to exist on Medicare payments alone, they might have to shut down. To make up for this Medicare shortfall, medical professionals, hospitals, and clinics charge a lot more to privately insured patients – cost-shifting of 87% or more. The hidden tax.


You pay more because Medicare pays less.


What are we currently doing to pay for the hidden tax?


If you are lucky enough, under ObamaCare you might qualify for the government to pay some or all your premium, which includes the hidden tax.

 

Government subsidies (which come from taxes) do help make premiums more affordable but do nothing about the hidden tax that makes the premium so high in the first place. 

If you are fortunate enough to have employer-paid group insurance, your employer is paying the majority of the hidden tax. You do share in the pain, however, through higher health insurance payroll deductions and less money for your pay increase. 


One possible fix, then, is to continue the government’s ObamaCare premium subsidies, and for employers and employees to continue to pay ever-increasing insurance premiums. This is nothing more than an expensive, temporary fix. It leaves the long-term problem of the hidden tax unresolved. 


Set the Price at the Medicare Level (Price-fixing)


“Whatever Medicare pays, make that the most a medical professional can charge.” This is called medical “price fixing.” This would immediately eliminate the 87% hidden tax. Is this possible without significant disruption of our health care?


Medical facilities and physicians rely on the hidden tax and without it, would need to dramatically change how they deliver care. This would result in reduced staff, shorter time with patients, and fewer physicians. Patients would not tolerate this over the long term. This idea is usually called “Medicare for All.” Under this scheme, without the hidden taxes from private insurance, patients are likely to lose access to quality care.


Or choose a moderate fix


We could keep doing what we’re doing – using premium subsidies to help finance the 87% tax. Or, we could “jump off the cliff” and eliminate the 87% tax overnight by choosing Medicare for All.


Instead, let’s do something more realistic and reasonable, something that does good, not harm. Let’s ask medical professionals to disclose the percent they charge above Medicare. Let’s ask them to post their rates above Medicare on their websites so we can easily evaluate it. We are asking them to disclose the hidden tax, and let’s retain our right to choose our own doctors, hospitals, and clinics. 


Part 2 in this series looks at other areas to cut cost, and Part 3 describes a new way to pay for medical care.

    

[i] Minnesota Measurements. 2018. Based on 1.5 million claims for $8.6 billion in medical services.


[ii] The two major government programs are Medicare, for individuals 65 and older, and Medicaid, for low-income individuals. Medicaid pays even less than Medicare for covered health care services, and medical professionals must recover these losses from you, if you have private insurance or pay cash.


[iii] The Affordable Care Act created the Medical Loss Ratio (MLR). The MLR limits health insurance companies from spending more than 15% (for large group insurance plans) and 20% (for small group and individual insurance plans) of each premium dollar for administration. Conversely, the insurance company must spend at least 80% or 85% of premium on claims.

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