NCHC Writers
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Embargoed for morning papers, December 6, 1995

Peggy Rhoades
(202) 637-6830Cutbacks in Medicare and Medicaid Funding Under The Budget Reconciliation Act of 1995 Could Add Almost 8 Million People to the Already Large Ranks of the Uninsured and Shift $85 Billion in Costs to the Private Sector, Predominantly to Middle Class Families

Washington, D.C. The National Leadership Coalition on Health Care today released a study showing that almost 7.8 million people could be added to the already large ranks of the uninsured by 2002 because of the $434 billion in Medicare and Medicaid spending cutbacks proposed in the Budget Reconciliation Act of 1995. The spending cutbacks are achieved through a combination of reductions in government payments to hospitals and other providers, increased beneficiary cost sharing, reduced coverage, and expanded managed care enrollment. The study was prepared for the Coalition by Lewin-VHI.

The study also shows that under the Act, at least $84.7 billion in additional health care costs could be shifted to and paid for by the nation’s families — predominantly middle class families — and employers, as providers shift costs to private payers over the seven years of the cutbacks.

According to the Lewin study, under the provisions of this Act about 7.8 million people could lose insurance coverage in the year 2002 alone. This includes those who could lose coverage due to reductions in enrollment in states that decide to reduce Medicaid eligibility (7.2 million) and workers who could lose employer coverage due to premium increases resulting from the cost shift. Under current policy, Lewin estimates there will be approximately 45.9 million persons uninsured in 2002. Under the Budget Reconciliation Act of 1995, their estimates indicate that the number of uninsured could increase to 53.7 million persons in 2002.

Cost shifting is the process whereby providers recover uncompensated care costs for the uninsured and the payment shortfalls for public program enrollees in the form of higher charges to private payers. The Lewin study points out that most of the cost shift that could occur under this Act, about $66.9 billion of the $84.7 billion, would be passed on to workers by employers in the form of foregone wages and in the form of higher cost sharing for health care premiums.

The cost shift affects all income levels, but 60 percent of the shift would be concentrated on the broad middle class — families with annual incomes between $20,000 and $75,000. Lower income workers would be disproportionately affected, with those making under $6.00 an hour losing 10 percent of wage gains under this scenario. Those making over $25.00 an hour would see only a 1.4 percent cutback.

The bottom line is that it is American families who will pay for the cost shift. Increased cost shifting would mean higher private insurance premiums, with employer health spending increasing by $69.3 billion over the seven year period. Empirical evidence indicates that employers are likely to pass on much of the increase in costs to employees in the form of reduced wages. The study estimates that the lost wage growth under this scenario could be about $61 billion, on top of a $5.9 billion increase in employee contributions to premiums. Thus the total cost shift to workers could be $66.9 billion, an amount equivalent to almost $1,000 per covered worker between 1996 and 2002.

This study is meant to raise a warning flag. It is important for the public to understand that the national dialogue on Medicare and Medicaid should include a discussion of the impact of major changes in public programs on the private sector.

The Coalition is a rigorously nonpartisan group. It is the largest and most broadly representative alliance concerned with health care issues. Its 93 members include businesses, labor unions, consumer groups and provider organizations. Its honorary co-chairs are former Presidents Jimmy Carter and Gerald Ford.

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