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Report: Health Insurance Premiums Carry 'Hidden Tax'

Posted on 29 May 2009

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A new report says that the health insurance premiums you and your employer paid last year for family coverage included a $1,017 "hidden tax" to cover care for the uninsured - and the cost is only going to get worse in the recession.

The "tax," or subsidy, is a long-standing phenomenon that happens because hospitals and doctors treat people without insurance who often cannot afford to pay the bill or can only pay part of it. So medical providers, in order to survive, find they need to shift the cost of uncompensated care to private insurance, said Families USA, which released the report at a Washington, D.C., press conference Thursday.

"Unless and until health coverage is expanded" to more people, "businesses and insured families will continue to be hit hard in the pocketbook by a large hidden health tax," said Ron Pollack, executive director of Families USA, a consumer advocacy group focusing on health care.

As more people lose their jobs and insurance, the hidden charge will grow, Pollack said. He said he wouldn't be surprised to see the $1,017 rise toward $1,100 this year.

he cost-shifting is a crucial piece of the health care reform puzzle, and the findings arrive as the debate forges ahead in Congress and state legislatures in Connecticut and around the nation.

Aetna CEO Ronald A. Williams told the press conference that if cost-shifting is eliminated, "then we will be in a position where hospitals and other health care professionals need smaller increases in order to viably operate their businesses and practices and be there as a good, stable delivery system in that community."

Williams noted, though, that Medicare and Medicaid also cause cost-shifting to private insurance by paying what many medical providers consider inadequate reimbursement.

Families USA hired Milliman Inc., a well-known actuarial firm, to analyze data for the report.

In 2008, the report says, the uninsured received $116 billion of care from hospitals, physicians and other providers, and the patients paid about 37 percent of the total. Government programs, workers' compensation, and charities covered about 26 percent. But the remaining $42.7 billion was left unpaid, according to the report "Hidden Health Tax: America Pays a Premium."

The uninsured often postpone care for financial reasons until it's more urgent and costly, which fuels the hidden tax, the report notes. That helps drive private insurance premiums even higher, making coverage unaffordable to more people.

Milliman estimated that the shifting of uncompensated care costs accounted for $1,017 of the average $13,275 premium for family coverage last year. The hidden tax for an insured single person was an estimated $368.

An Emory University professor did a previous estimate for Families USA showing the hidden tax represented $922 of premiums for a family's coverage in 2005, and $341 for individual coverage.