Cost Shifting in Health Care: An Economic Analysis

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Abstract
Prologue: The commercial health insurance industry and, to some extent, large employers have sharply attacked government policies that have led hospitals to shift costs to private patients because of inadequate payment from Medicare and Medicaid. The industry estimates that these cost shifts now total $6 billion. But the industry has not paid much attention to another question. If American society has decided, as surely it has, to provide at least a minimum level of protection to its most vulnerable citizens, how should that protection be financed? Jack Meyer, an economist at the American Enterprise Institute, and William Johnson, an associate professor of economics at the University of Virginia, provide some illumination on that question by assessing some alternative forms of financing. Their article represents the first time that the cost-shifting issue has been examined from a public financing point of view. Meyer and Johnson bring to the work professional backgrounds in health economics and public finance. Meyer's professional work generally has favored greater use of market principles to address health resource allocation issues. While he has devoted time to analysis of programs on the national, state, and local levels, Meyer generally favors the national level as the locus for health financing programs. Johnson, too, is a market-oriented economist, but the bulk of his work has been in public finance and labor issues. Indeed, this paper is his first foray into health policy concerns. Johnson's interest in health stems in part from a year at Stanford University, where he came in contact with Victor Fuchs. Johnson also has written, with Edgar Browning, an important book entitled The Distribution of the Tax Burden . The authors would like to thank Samuel A. Mitchell and Gail R. Wilensky for helpful comments on an earlier draft of this article.

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