Study: Washington employers pay $1 billion in 'hidden tax'

05:56 PM PDT on Wednesday, May 31, 2006

By ROBERT MAK / KING 5 News

Ever wonder why the cost of health care just keeps going up? A new study from an insurance company puts the blame on government for failing to reimburse doctors fully when they treat Medicare and Medicaid patients.

Every year, deductibles go up, and so do co-pays. The study finds that most hospitals in Washington state are staying afloat by making a higher profit on certain patients. Some say it’s a dangerous trend.

At age 85 June Henry watches her health closely. Medicare is paying for her office visit but Medicare rates are so low that many doctors say they actually lose money.

A new study released Wednesday by Premera Blue Cross finds Washington state hospitals get 43 percent of their net revenue from Medicare and Medicaid patients but those same patients ring up 52 percent of the costs.

In the late 1990's, hospitals had a 7 percent profit margin on patients with private insurance or other commercial plans. As Medicare became a bigger drain, hospitals boosted their profit margins on patients with private insurance to 16 percent.

"For the employee it means in the last couple years, some of their benefits have been cut, some of their wages haven't increased as much and they haven't even known why, and this has been a part of it. They're paying a tax that they aren't aware of," said Leo Greenawalt of the Washington State Hospital Association.

"There is no simple, easy solution to this, so we don't come to this and say, we've taken a look at the numbers and now, here's the solution," said Rich Maturi of Premera Blue Cross.

It’s a vicious cycle -- insurance rates keep rising while more people go without insurance. Meanwhile, governments are unwilling to spend more on health care. All this leaves doctors with tough decisions on whether to treat Medicare patients.

"You certainly don't want to be overwhelmed with Medicare because you just wouldn't make ends meet, but currently, I'm still taking Medicare because I enjoy taking care of those people and those people are people who need help,” said Oren Townsend, a physician at the Polyclinic.

If you add up how much employees and employers with private health insurance are paying to make up for Medicare and Medicaid, Premera's study estimates it's more than a billion dollars a year. Put another way, about 13 percent of your health insurance costs go toward subsidizing Medicare and Medicaid.

Premera, along with hospitals, business groups and others, will be holding a public meeting in July to raise awareness and to put pressure on local and federal governments to do something about the problem.