Future Cost of Medical Care

Reprinted from The East Hampton Star 12/22/2016

http://easthamptonstar.com/Letters-Editor/20161222/Letters-Editor-122216

 

Cost of a New Knee

To the Editor:

How much will my metal knee cost?

One of us is considering a total knee replacement. A titanium knee! So we did some research on cost (the below considerations are applicable to any surgical or medical treatment).

The average overall cost for a knee replacement in the United States is $30,000 to $45,000. The cost is about $40,000 at a hospital in New York City.

More than 400,000 Medicare beneficiaries had knee or hip replacement surgery in 2014, the Department of Health and Human Services reported.

Medicare Part A and Part B (also known as Original Medicare) cover different portions of this procedure and the associated aftercare. How much is covered by Medicare? And what does the patient have to pay?

To keep costs down for the government, Medicare has contracted with the hospital in New York City. Medicare pays a set price for the inpatient hospital portion; let’s estimate $8,000, leaving you to pay a pre-set deductible of $2,000, either from your savings or using a secondary health insurance, if you have one. This covers the Part A portion of Medicare; Part B will pay for physician services.

What about the hospital and the surgeon? Can they charge above the negotiated prices? They have little choice: They can absorb the losses or flatly refuse to take Medicare or Medicaid patients. When Medicare fixes their prices for a given procedure, the hospital and surgeon may not charge the difference between the posted charges and the Medicare reimbursement amount, and the physician accepts “assignment.” The Medicare program developed these payment systems because they realized that hospital charges rarely reflect the true cost of providing services.

The good news is that we found a hospital and a surgeon that will take on the case even though the patient is on Medicare.

Assuming Obamacare is repealed and Medicare is privatized in 2017, how is this going to change coverage for the planned surgery? The government is no longer a player. It is now just the provider (hospital and surgeon) vs. private insurance companies in a free-market system. Insurance companies will want to minimize their costs. They will a) bargain with providers, b) increase the deductible, co-pay, and co-insurance, paid by the patient, and c) increase the monthly patient premium insurance rates. There will be no incentive for providers to cut their costs and be less wasteful.

Obamacare provided those incentives, known as 1) Accountable Care Organizations, designed to coordinate care, and 2) transitioning from a fee-for-service model (paying on volume) to a bundled payment model (paying on disease episode). At the new bargaining table are only insurance companies and the hospital and surgeon. The patient has no representative at the table, since the government has pulled out. As every lawyer will tell you, without legal representation you are screwed.

The worst-case scenario is insurance companies increasing premium rates for everyone, because covering an elderly and sicker patient population without help from the government will greatly impact their risk pool.

It is difficult to model a payment scenario under a newly voucherized system where consumers are given a pre-set premium amount and told to go find the insurance that best suits their needs. We do know the following, though: With Obamacare repealed, insurance companies would no longer be obligated to use 80 percent of premium payments toward patient coverage.

With Obamacare care repealed, lifetime limits may apply. With Obamacare repealed, pre-existing exclusions may come back. With Medicare privatized, deductibles, co-insurance, and co-pays will no longer be set by Medicare, but by the needs of the insurance company.

Let’s make some assumptions. The hospital still offers the procedure for $40,000, and it has contracted with your selected, privatized Medicare insurance to do it for $20,000. However, that $20,000 will include a much higher deductible, co-pays, and co-insurance that will be the patient’s responsibility. So, whereas under traditional Medicare, in our example, the patient responsibility will be about $2,000, payments under a new privatized plan, unfortunately, will skyrocket — perhaps to $4,000 to $8,000?

DAVID N. POSNETT

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About D. Posnett MD

Emeritus Prof. of Medicine at Weill Cornell Medical College
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