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Another Bob Greczyn claim goes to the truth-o-meter

imagesWe certainly can’t point out every lie told by Blue Cross and Blue Shield of North Carolina — there just aren’t enough hours in the year. But what about this claim [1] by Greczyn:

This argument ignores the reality that insurance premiums have to rise in concert with mounting health care costs and increasing demand for the things insurance pays for: hospital stays, drugs, medical devices and diagnostic testing.

In other words, rising premiums are not the fault of private insurance companies.

Ezra Klein has an interesting [2] chart today provided by Kaiser Permanente CEO George Halvorson that shows the steep prices our citizens pay for every medical test and procedure — and that is ignoring the volume of tests we receive. These tests and procedures and hospital stays cost more because of private insurance.

Medicare makes reimbursement recommendations based on wide ranging studies of how much care costs at efficient, high-quality hospitals around the country in urban and rural settings. It studies academic medical centers, teaching hospitals, and non-teaching hospitals. It then determines how much those efficient, high-quality hospitals need to make per procedure from Medicare.

Private insurance sets its payment rates by negotiating with hospitals, and Blue Cross Blue Shield of North Carolina is constrained only by the market power of the hospital and how much it can pass on to customers in the form of premium hikes. Because Blue Cross is a near monopoly insurance company it can pass on a great deal of costs to policy holders.

If a big hospital wants to put two flat screen televisions in every room, install hardwood floors, construct man made lakes and other amenities that don’t improve patient care, that overhead is passed on as “costs”. Blue Cross, as long as it can increase premiums, pays the hospital extra for those extra costs.

Certainly some premium increases are driven by the underlying cost of care. But Greczyn’s claim that private insurance companies are just passively reacting to the market is bogus at best.