CMS signals premium increases

An employer checks out medical benefit premium trend

CMS signals premium increases

By Grant Dattilo

Recently, the Centers for Medicare and Medicaid Services announced Medicare reimbursement rate increases for 2022. This matters because private insurance premiums use the Medicare rate as a base rate in order to calculate their insurance reimbursements to providers.

Each increase in the Medicare reimbursement rate translates to higher private insurance premiums.

CMS’ proposal is to raise reimbursement rates by 2.3 percent in 2022.[i] This means that a physician providing services to a Medicare patient in 2021 for which Medicare reimburses $100 will receive $102.30 in 2022. A hospital providing services to a Medicare patient in 2021 for which Medicare reimburses $20,000 for a procedure will receive $20,460 in 2022.

Proportionately Higher Prices for You

Individuals who receive their health insurance from an employer, or who purchase private insurance, should know that this Medicare increase, no matter how necessary it is for providers, translates into a larger insurance premium increase for them. That is because a private-pay patient pays a provider an amount greater than Medicare for the services they receive.

In The Manual, Health Care 2020: Connecting the Dots,[ii] you can learn about the Medicare-Percent. This represents the amount a provider will accept as full payment for services rendered. It is expressed as a percentage of Medicare.

Today, if a hospital provides a hip replacement surgery for a Medicare patient for which Medicare reimburses them $20,000, on average, your insurance will pay the hospital $49,200 for the same procedure – a Medicare-Percent of 247 percent.[iii]

Next year, your insurance will pay $50,536 for that same procedure, that is, if the Medicare-Percent remains at 247 percent. And the only way to reduce it is for patients (consumers) to know about it and pressure providers to accept less as full payment. Your health insurance premium must increase to cover the additional payment, and the increase will be more than 2.3 percent.

Many benefit consultants are working on new ways to mitigate the continuous increase in premiums employers and individuals must pay. Take a few minutes to review What’s Your Number? which answers this question with a new form of price transparency – i.e. disclosing the Medicare-Percent. In the new way of pricing health insurance that the article suggests, whenever Medicare increases a provider’s reimbursement by 2.3 percent, private insurance reimbursements increase based on the same ratio. In the example above for a hip replacement it would save a privately insured person $1,336 and that will translate into lower health insurance premiums.

Email us to receive a free digital copy of The Manual, Health Care 2020: Connecting the Dots.

[i] Paavola, Alia (2021) CMS Proposed Outpatient Payment Rule for 2022: 7 Things to Know. Blog. Becker Hospital Review., accessed July 20, 2021.

[ii] Racer, Dave; Dattilo, Greg. The Manual: Health Care 2020: Connecting the Dots. Alethos Press, St. Paul, MN. 2020.

[iii] The Rand Foundation. 2020.

Grant Dattilo