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Inflation in Medicare, private insurance, and work comp

Credible research indicates health cost inflation rates will remain fairly low during this decade, driven by “greater cost-sharing in private insurance, new Medicare payment policies, slower growth in prescription drug spending, and an upcoming tax on high-cost insurance premiums.”
Note two of the primary drivers are reduced payments to providers by Medicare and Medicaid and more spending by individuals. These ‘cost-moderators’ are countered (somewhat) by the growth in Medicare eligibles.
The result is overall inflation rates will be about the same for private payers and Medicare at 5.7%. However, on a per-enrollee basis, Medicare’s trend is substantially lower (more than two points) than private insurance. Again, cuts in Medicare’s reimbursement to providers is the primary driver.
It is important to understand the difference between overall program and per-enrollee
cost inflation; it’s also important to think thru the implications for other payers – work comp and auto specifically.
With significant growth in Medicare and Medicaid enrollment coupled with low growth in the number of privately insureds, providers will see flat to declining compensation from a large chunk of their patient population. The latest figures indicate physician compensation rates have been relatively stable; given low overall inflation this is likely “acceptable”. Notably, some specialities saw increases while others dealt with reduced compensation.
However, as patient mix changes, the decline in compensation is inevitable, and will have far-reaching consequences.
What does this mean for you?
Expect utilization to increase, along with charges for services billed to all payers. Those payers without strong fee schedule or contractual controls on price will likely see significant price inflation as well.

Joe Paduda is the principal of Health Strategy Associates




A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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