A recent commentary from an academic whose primary source of funding is a national profit-focused insurance company takes unjust aim at hospitals and the vital care they provide to Californians throughout the state.
In a piece published last week in CalMatters, “Bitter medicine: How California’s hospital bills end up depressing your take-home pay,” Glenn Melnick, the Blue Cross of California chair of healthcare finance and director of USC’s Center for Health Financing, Policy and Management, cherry picks information to deflect blame from large insurance companies as he targets hospitals that are struggling just to keep their doors open.
To begin with, we must be clear that help is needed to make health care more affordable. And there are ways to do that without jeopardizing access to critical services — through a collaborative, multidisciplinary effort where hospitals, doctors, pharmaceutical companies, insurers, and others are working together.
Instead, Melnick backs insurance companies that are raking in billions of dollars in profits at a time when 44% of hospitals in California lose money every day caring for patients.
That’s why we must set the record straight:
- First, Melnick suggests that hospitals are to blame for rising health insurance premium costs, a burden on both workers and employers. The facts tell a different story.
Just as hospitals are cutting spending to stay under the Office of Health Care Affordability’s (OHCA) 3.5% spending cap this year, health insurance companies are increasing their premiums by more than 8%. While the assumption is that if spending slows, consumers will see those savings translate to lower premium growth, OHCA offers no formal mechanism to ensure that happens and there is, already in year one, a complete disconnect between hospital spending on care and the rising insurance premiums millions of Californians pay each month.
OHCA’s own analysis shows that insurers will take every opportunity to pad their bottom lines. In fact, insurance company administrative costs and profits ballooned more than 23% in 2023, while hospital spending grew less than 5%. That same analysis found that nearly 17% of health expenditure growth from 2022 to 2023 supported higher health insurance company profits, not patient care. - Second, according to Melnick, “ … the affordability agency’s policy does not impose budget cuts. It is designed to slow health spending growth, not make actual cost reductions.” Again, the facts refute this position.
Capping spending below inflation is a de facto cut. Failing to keep pace with even basic rising cost growth in labor expenses, utilities, medicine, and more means hospitals will be forced to reduce spending in other ways. With hospitals seeing massive increases in costs for pharmaceuticals, goods and supplies, and employee wages, the very real outcome will be layoffs, service line closures, and sadly, worse health outcomes for patients. - Finally, Melnick states that 40% of hospital spending does not go to patient care but instead goes to “overhead.” This suggests a broad lack of understanding about what it takes to keep a hospital running 24 hours a day, 365 days a year.
Clearly, patients cannot do without essential hospital functions, like water, electricity, food preparation, laundry services, and cleaning. Other things that would fall in the “overhead” bucket are medical education and research — critical activities that the patients of tomorrow rely on. Of course, hospitals’ financial services teams have to bill insurance companies for the care they are supposed to be paying for to heal their clients.
Hospital care is resource-intensive, often for justifiable reasons. Hospitals care for the most gravely ill or injured people with the most complex conditions using state-of-the-art medical equipment, advanced therapeutics, and highly diverse care teams capable of responding to any need. They do this year-round, without closing, for everyone who walks through their doors, regardless of whether they have insurance coverage. The goal should be to bring our health care system together to make care more affordable, not to reinforce tired and false narratives that muddy the conversation and effort.
