Cost shifting vs. Cross-Subsidization
From a definitional perspective, cost-shifting refers to the feature or practice in which the low rates of payment regarding Medicare enabling the healthcare service providers to alternate the cost of treating patients from the Medicare insured to the privately insured patients. The practice develops into a situation in which the privately insured patients pay more in the process of catering for the low payments by the Medicare insured patients (Dranove, 2017). On the other hand, cross-subsidization relates to the practice in which providers use diverse charges to unique customers (Banks, Foreman, & Keeler, 2017). From this perspective, privately insured patients have to pay percentages that are more significant in the fixed healthcare cost in comparison to the Medicare patients on the low margin.
Besides, cost-shifting practice is part of the causal claim or values claim, while the cross-subsidization method is a reflection of the values statement. As a reflection of the value statement, privately insured patients must pay more in the case of the cost-shifting practice because they represent the largest share of the healthcare revenue for the providers. In terms of the causal claim, the higher pay by the privately insured patients is an outcome of the lower patients associated with the Medicare program. Healthcare providers and systems have to make a profit in the course of staying in the business model. Cross-subsidization depends on the present competition in the market rather than regulations from the policymakers in the healthcare sector. Cost shifting comprehends the financial responsibilities of the healthcare sectors; thus, the adoption of the differential pricing in addressing the needs and expectations of the patients.
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Benefits and Disadvantages of Cost-shifting vs. Cross-subsidization
From a positive perspective, cost-shifting plays a critical role in enabling healthcare providers to make profits and stay in business as privately insured patients pay more compared to their uninsured counterparts. In this aspect, cost-shifting enables healthcare entities to address the operational costs based on the inability of the government to address these costs following the formulated regulations and policies, thus, increased burden on the healthcare systems (Dranove, 2017). Cost shifting reflects on the series occurring when the government shifts its costs to the healthcare facilities that shift the prices further to the insurance companies before reaching employers and consumers. The effects relate to lowered wages, decreased benefits with healthcare, increased utilization of the pocket money in addressing the expenses, and increasing the burden of taxation on the consumers.
Alternatively, cross-subsidization has been critical in generating unprofitable services by healthcare providers in a manner aimed at reducing or preventing financial losses. The practice emanates from the exercise by the government to engage in subsidizing services, as well as admission fees associated with Medicaid and Medicare (Banks, Foreman, & Keeler, 2017). While focusing on private insurance, healthcare providers have to transform their prices based on demand and supply, leading to distortion of the costs. Insured patients have the chance to benefit because of the approach by the insurance companies and employers to pay better for access to different products and services. Cross subsidization generates better treatment for the patients who are likely to be generous with their pay. Additionally, healthcare providers dealing with the emergence cases might benefit significantly compared to the practitioners operating on the scheduled visits.
Policies using these Methods
Notably, the government continues to make diverse efforts to reduce costs regarding Medicare, as evident with the Budget Reconciliation Act of 1981, which did transform the healthcare system and increasing the essence of cost-shifting. Besides, the government sought to incorporate the ratable reduction in the General Assistance Medical Care to address the needs of the mentally ill patients, as well as the poor who remain ineligible for Medicaid following the Health Insurance Association of America (Steinbuch, 2010). In the case of cross-subsidization, there is the provision of uncompensated care leading to an increase in the positions of the providers in the market and industry of operation. The practice is a reflection of the approach by for-profit and nonprofit healthcare facilities through financial gain, as well as the presence of the shareholders.
Medicare and Managed Care
Medicare and managed care play valuable roles in the healthcare facilities using cost-shifting, as well as cross-subsidization, such as reduction of the cost associated with the provision of healthcare. It is essential to note that healthcare facilities incur losses; thus, the need to adopt the right business model in the course of recouping the losses. There have been different legislations in place to cut the budget associated with financing Medicare following the Health Insurance Association of America (Steinbuch, 2010). Various insurance companies focus on the utilization of the cost-shifting and cross-subsidization. There has been an expansion of cross-subsidization leading to changes in the market experiences among the healthcare planners and facilities, leading to proposed health reform laws. In case of inappropriate handling, cross-subsidization has the potentiality to increase.
Alternate Solution
In addressing the financial loss by the healthcare facilities when treating uninsured patients, there is the chance to use diverse approaches while addressing the ratio between patients who pay and those who cannot pay. The focus should be on uninsured patients to cater to their needs by providing insurance or getting their bills fed for following the analysis of the offered services. The approach should relate to nonprofit healthcare facilities. It is also possible to concentrate on increasing payment to the healthcare systems and providers for the insured patients’ specific for the quality services (Steinbuch, 2010). The approach will be essential in avoiding the development of the enticements concerning over-provided services.
References
Banks, D., Foreman, S. & Keeler, T. (2017). Cross-subsidization in hospital care: some lessons from the law and economics of regulation. Health Matrix , 9(1):1–35.
Dranove, D. (2017). Pricing by Nonprofit Institutions: The Case of Hospital Cost Shifting. Journal of Health Economics, 7 :47–57.
Steinbuch, R. (2010). Healthy competition: getting the best hospital care for patients. Journal of the National Medical Association , 102(6):491–492.
