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JLF Research Brief: Medicaid Expansion and Health Care Costs: Lessons From Colorado

John Locke Foundation’s Health Care Policy Analyst Jordan Roberts writes:

Gov. Roy Cooper and Medicaid expansion supporters agree that the amount of uncompensated care is what is driving skyrocketing hospital prices.

But is that accurate? Let’s consider the relationship between the cost of care and health insurance.

Many variables determine insurance rates on the Obamacare exchanges: the number of insurers, the benefit level of the chosen plan, the prices that are negotiated between insurers and facilities, and more. However, high hospital prices are a significant factor when insurers determine rates for insurance premiums, deductibles, and co-payments.

Proponents of expansion claim that if the state expanded its Medicaid program, uninsured patients would gain coverage from Medicaid and hospitals would receive some reimbursement for the cost of care that was previously unreimbursed. The thinking goes that a reduction in uncompensated care would, therefore, not require hospitals to shift uncompensated costs to the privately insured through higher prices for hospital services. Their logic continues that, by covering more uninsured individuals, hospitals would have to pass along fewer costs, which, in turn, would reduce overall premiums on the private insurance market.

However, a recent report from the Colorado Healthcare Affordability and Sustainability Enterprise found no reduction in costs after the state expanded Medicaid. The article concludes that expanding Medicaid in Colorado:

“led to increased Medicaid payments to hospitals, fewer uninsured, less bad debt and less charity-care write-off for hospitals, [but] these policies did not result in a reduction in a hospital cost shift to other payers to cover the cost of uncompensated care as expected. Instead, prices continue to rise for non-governmental payers while hospital costs and margins also rise.”

Now let’s consider factors that may influence prices that hospitals and other providers can negotiate with insurers.

There is a debate within the health care field about whether prices or utilization drives the total cost of health care. While there are issues with utilization and waste, the literature mostly agrees that prices in the United States are driving total health care spending.

Now, this may seem like an obvious point. If health care prices in the United States are higher than in other countries, and we use comparable amounts of health care services, we should spend more than other countries.

But why? Why are prices for procedures so much higher in the United States? For example, one study found “a U.S. coronary artery bypass graft surgery cost $75,345, vs. $15,742  in the Netherlands; a U.S. computed tomography scan cost $896 per scan vs. $97 in Canada.”

One explanation for the difference could be the prevalence of hospital mergers. Regional consolidations may also play a role. The research is clear on hospital consolidations – they hurt consumers and raise prices for everyone. Mergers occurred at an alarming rate over the past two decades. As of 2016, 90 percent of metropolitan areas had become highly concentrated. Further, when hospitals buy physician practices in an area, prices rise. North Carolina is no stranger to hospital systems seeking to control larger segments of the market.

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