Medicaid and CHIP will overshadow Medicare

December 1, 2011

It is important to consider the impact the federally mandated coverage provisions might have on enrollment.

MEDICARE DOMINANT PAYER

In short, MedPAC asserts that it is not necessarily that Medicare "underpays," but rather that market power in some areas allows providers to operate inefficiently and make up the costs through negotiating higher payment rates with private payers. Of course, many providers and private payers dispute this conclusion.

Meanwhile, a massive Medicaid expansion is on the horizon. In fact, a recent study by analysts at the Harvard School of Public Health found that as many as 22.4 million people could be added to the Medicaid rolls by 2019.

This growth means that Medicaid and CHIP will become far larger payers than Medicare. Indeed, the CMS Actuary estimates that 82.2 million people will be covered by Medicaid and CHIP in 2019, and only 60.5 million in Medicare. The result of this expansion, along with the corresponding start-up of health insurance exchanges providing federal subsidies for the purchase of insurance, is that although almost 93% of the population will be insured by 2019, government will be paying for the insurance for half of this population-with Medicaid as the dominant payer, rather than Medicare.

As a result, Medicaid patients-and their accompanying reimbursement rates-are likely to impact more and more providers over time and potentially shift a greater portion of the healthcare system's costs onto the privately financed insurance market.

COST SHIFT DEBATED

While the exact effect of public payer payment rates on private healthcare costs can be debated, the fact that impending federal and state budget calamities will put increasing strain on rates in both Medicare and Medicaid cannot.

While some providers may answer the call by becoming more efficient and embracing new payment models (as MedPAC suggests is possible), change will not come over night. Therefore, the privately insured-and the employers that pay the bill for the majority of their healthcare costs-should explore ways to rationalize payment rates across both public and private payers, and lead the push for delivery system transformations that will reduce healthcare costs systemwide.

Cindy Gillespie is a managing director for McKenna Long & Aldridge LLP.

Elizabeth Carpenter is a healthcare specialist for McKenna Long & Aldridge LLP.

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