Each year health-related spending grows in the United States. The National Health Expenditure (NHE) reached $4.5 trillion in 2022 and accounted for 17.3 percent of the country’s Gross Domestic Product (GDP). Private health insurance, which includes employer-sponsored plans, contributed the most by accounting for almost 30 percent of the NHE.
The growth of the NHE is projected to outpace the average GDP growth and outpace economic growth, personal incomes and inflation. One of out every six dollars of the nation’s annual production of goods and services is dedicated to health care. Projections estimate the health spending share of GDP to be close to 20 percent by 2030.
Why focus on hospital costs? In 2022, hospital care represented the largest share of personal health care expenditures in the United States, reaching $1.4 trillion. It also accounts for the largest portion of the National Health Expenditure at 30 percent. An essential part to living a long and healthy life is by obtaining high quality health care. With most Americans living paycheck to paycheck, a hospital stay can be financially devastating. Between 1999 and 2021, the average hospital stay cost increased 161.7%.
On a national level, between 2016 and 2018, on average, employers and private plans paid hospitals 240 percent of the Medicare rate for the same services at the same set of hospitals. The majority of Americans receive health benefits through private plans – most of those plans are employer-sponsored plans. In Michigan, the flagship hospitals of major health systems charge private plans between 172 percent and 307 percent of the Medicare rate – creating an unfair pricing model.
Historically, the State of Michigan ranks lower than most of the country for hospital care costs. However, even Michigan isn’t immune to the constant rising costs of hospital services. In Michigan, hospital costs are climbing at an unsustainable rate. Between 2010 and 2020, payers in Michigan experienced a 40 percent increase in costs for hospital services.
Why are hospitals not charging the same rate for services to all patients? Would you go to a coffee shop and pay 200 or 300 percent more for the same coffee as the person in front of you? No, you wouldn’t. So why do we allow hospitals to continue this billing practice?
By deep diving into available data regarding operating margins of hospitals, the evidence demonstrates that hospitals DO NOT need to cost-shift and charge employer-sponsored/private health plans the insanely higher rates compared to Medicare rates. The major hospitals in Michigan have adequate operating margins, operating profit margins per adjusted discharge, and cash reserves.
Hospital prices account for almost half the bill of employer healthcare costs. Again, hospital prices are the largest sector of the National Healthcare Expenditure and have consistently been the fastest growing. The rising costs take a huge toll on employers. With less monies for technical advancement, job creation and increased productivity, Michigan and the rest of the country have reduced competitiveness in the global market.
The current, unfair pricing model that hospitals are implementing charge employer-sponsor/private plans considerably more than the Medicare rate. In Michigan, the flagship hospitals of major health systems are financially healthy and have adequate operating margins, operating profit margins per adjusted discharge, and cash reserves. There is no reason to cost-shift charges to employer-sponsored/private plans.
Immediate action is essential. Hospital costs need to decrease and stop over-charging employer-sponsored/private plans. Policy makers, hospital administration, physicians and advocates need to focus on how to develop a hospital price model that charges fair prices to all payers and purchasers of health care.
Policymakers and employers need to ask hospitals and health systems why are employer-sponsored/private plans charged a significant amount more than Medicare plans for the same services? Employers need to be at the table with health management so both sides have a better understanding of each other’s struggles. Policymakers need to develop ways for holding hospitals and health systems accountable for unfair pricing habits.
