Unintended Consequences

Medicare limits reimbursement for healthcare procedures, often below the cost of delivery of these procedures.  Not surprisingly, healthcare providers figure out ways to compensate for these price controls.  They may, for example, bundle other, profitable services with those that they are forced to provide at a loss to get the overall profit margin to be positive.

Another thing providers do is charge non-Medicare patients more.  Consequently, patients with employer-based insurance pay more to subsidize Medicare patients.  I have seen several studies that estimate that employers pay, on average, for 120% of the costs of their employees’ healthcare costs.  In other words, they are paying for 20% of a Medicare patient for every employee and family member they insure.

The result of this is that employer-based health costs are growing faster than the costs of their employees’ healthcare.  This means that employee productivity increases that would have translated to wage growth are instead being used to cover increased healthcare costs for Medicare patients.  Wage levels are, therefore, depressed.  I cannot imagine that Medicare policy makers consciously decided to depress wage levels in the U.S.  However, that is a primary unintended consequence of their price control policies.

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