Healthcare Profit and Subsidization

Medicaid simply doesn’t pay enough for many medical providers to make a profit. The reimbursement rates often cover only fixed costs, and don’t really cover the full operating costs of a service. Medicare pays slightly better, usually covering operating costs and sometimes providing just enough for a small profit. Private insurance, however, pays a lot more than the two main public funding sources for health care in the United States. It is in private insurance that profit is to be made for medical providers.

 

As Dave Chase writes in his book The Opioid Crisis Wake-Up Call, “While employer and union health plans are roughly one-half of all health care spending, they likely represent over two-thirds of health care industry profits because they often wildly overpay for health care services.”

 

Think about who is most likely to need healthcare services: elderly and disabled individuals. Our system of Medicare pays just enough for providers to make a tiny profit, most of the time, for elderly patients. Our patchwork of state Medicaid systems, which many poor, minority, and often disabled individuals rely on for health care coverage, pays below operating rates for many procedures. While we have more elderly people utilizing the healthcare system and while we have more low income individuals with disabilities relying on healthcare, services for these two groups is not where profit is generated in healthcare. Instead, profit is generated from the reasonably healthy people who work steady jobs and heave employer provided insurance. The charges to private insurance companies are so high that even though their patients use less care, they provide a much greater percentage of the providers’ profit margins.

 

The first implication of this system that I want to highlight is the inequality in terms of access that arises within the system. If you rely on Medicaid, you may have trouble finding a provider who will take you. That is because the provider knows that while they will get paid for treating you, they might not actually break even for their time. There are other patients out there who offer more profit to the provider than what your Medicaid coverage will offer.  Because of the low reimbursement rates of Medicaid, many providers cap the number of Medicaid patients they see, making it harder for people on Medicaid to receive any services at all. For Medicaid patients, care is strictly rationed.

 

The second piece that I want to highlight is a way of framing the costs in this scenario. Providers lose money on Medicaid, maybe make money on Medicare, and jack up their prices for private insurance to ensure they make a profit at the end of the day. A lot of times providers will justify this approach by describing their high rates to private insurance patients as subsidizing the meager rates they receive from seeing patients covered by public plans. In a country that hates the idea of government redistribution and direct subsidizing of healthcare for the poor through taxes to support universal healthcare, we are already subsidizing the care of those who can’t afford care.

 

Most healthcare providers generally want to help people, it is usually a big part of what pulled them into their work in the first place. And even without Medicaid, many of them would likely still treat some people with no means to pay, writing off the free care they provided and potentially charging other patients more so they could afford to take on some charity cases. In a system built on empathy and care for the health and well-being of others, there is no way to avoid subsidizing other people’s care, at least a little bit.

 

I think we should be honest with the fact that we are already subsidizing healthcare to a large extent through our private health insurance system and the charges from providers for patients with private health plans. The incredibly high charges to private health insurance means higher premiums for everyone on those plans. For some reason we hate the idea of having to pay higher taxes for free health care, but are willing to shove out unreasonable healthcare premiums for expensive health insurance.

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