Cost-shifting

Cost-shifting is either an economic situation where one individual, group, or government underpays for a service, resulting another individual, group or government overpaying for a service (shifting compared to expected burden). It can occur where one group pays a smaller share of costs than before, resulting in another group paying a larger share of costs than before (shifting compared to previous arrangement). Some commentators on health policy in the United States believe the former currently happens in Medicare and Medicaid as they underpay for services resulting in private insurers overpaying. In 1995, Health Affairs started a study testing the “cost-shifting” theory using a unique new data set that combines MarketScan private claims data with Medicare hospital cost reports, the study ran from 1995-2009. In May 2013 when the findings were released, the study found that a 10 percent reduction in Medicare payment rates led to an estimated reduction in private payment rates of 3 percent or 8 percent, depending on the statistical model used. These payment rate spillovers may reflect an effort by hospitals to rein in their operating costs in the face of lower Medicare payment rates.