Al Dobson, Joan DaVanzo, Audrey El-Gamil, and Greg Berger published an article in Health Affairs entitled, "How A New 'Public Plan' Could Affect Hospitals' Finances And Private Insurance Premiums."

Published Tuesday, September 29, 2009

WASHINGTON, D.C. Introducing a government-run health insurance plan could cause hospitals to shift a new financial burden onto patients with private insurance, raising premiums for those who already have coverage.

According to a new study by Dobson DaVanzo & Associates, LLC published today on the Health Affairs Web site implementing a public plan could place a variety of financial pressures on hospital management, resulting in sharply raised private insurance premiums if hospitals prove unable to curtail costs under a new system.

When public programs pay less than costs for the services their patients receive, hospitals attempt to shift costs to private payers in order to cover their expenses, modernize, and stay current with emerging technology. A health care system with a public plan could increase hospital pressures to shift costs.

"This paper supports the contention that a government-run plan that is aggressively implemented to include large proportions of the privately insured could test the U.S. health care financing system," write Allen Dobson and Joan DaVanzo, lead authors of the study. "Rising hospital private-payer payment-to-cost ratios could be followed by rising private insurance premiums. The result could be the antithesis of what advocates say is the advantage of a public plan: to curtail cost growth for the average citizen."

A large influx of individuals to a new public health care program could place tremendous strain on the nation's health care financing system, even if payments are set at Medicare rates plus 10 percent. While some hospitals may be able to absorb the initial costs imposed by a government-run plan, some degree of cost shifting could occur to pay for the new, and likely underfunded, public program.

Based on hospital financial data from the California Office of Statewide Health Planning and Development (OSHPD), the study was designed to show the effect of various reallocation scenarios on hospital patient revenue margins and private payer payment-to-cost ratios. The study indicates that a high level of enrollment of the uninsured would initially bolster hospital finances. However, when the privately insured begin to move from the private sector into the public plan, this positive effect is reversed and hospital patient revenue margins decrease. The mass reallocation of the privately insured to the government-run plan could lead to an increase in private insurance premiums to defray hospital costs, unintentionally forcing private plan enrollees to bear a portion of the costs of health insurance reform.


Article: "How A New 'Public Plan' Could Affect Hospitals' Finances And Private Insurance Premiums," Allen Dobson, Ph.D., Joan DaVanzo, Ph.D., M.S.W., Audrey El-Gamil, and Gregory Berger, Dobson DaVanzo & Associates, LLC, Vienna, Virginia; Health Affairs, September 15, 2009.

(Full text of the article is available at

Dobson DaVanzo & Associates, LLC is a health care consulting firm based in the Washington, D.C. metropolitan area. The work of the firm's principals has influenced numerous public policy decisions, and appears in legislation and regulation.