Fees not the same as Income? Who knew?

How many times do we read of physicians' complaints that the fee allowances insurance companies use to reimburse them have not increased in "x" years? Is there a reasonable response to such complaints?

Yes, as Uwe Reinhardt of Princeton University explains today in the New York Times.

There are three charts in the linked article. I draw your attention to the third chart, "Medicare Spending on Physician Services 2000 - 2009". Here is Dr. Reinhardt's key insight, illustrated in this third chart:

". . . "the top line (in black) shows that, in spite of Medicare’s miserly fee updates, total Medicare spending on physician services per Medicare beneficiary actually has grown by fully 60 percent from 2000 to 2009, at an average annual compound rate of 5.4 percent. [snip] Thus, after blushing over miserly fee updates, taxpayers might go on to ask physicians why an average annual compound increase of 5.4 percent in spending per Medicare beneficiary was not enough to give the nation’s elderly good medical care and, if it was not enough, what would have been an adequate annual increase in Medicare spending on physician services — perhaps 7 percent, or 10 percent, of 15 percent, or how much?"

The phenomenon of income growth in excess of fee growth is not limited to Medicare spending nor is it limited to physician spending. It occurs in in hospital costs as well, both in Medicare and in the private sector.

So a reasonable response to a physician complaining about the absence of growth in insurance company fee allowances, is simply to ask - "has your income grown in the past x years?" For the majority of physicians the answer will be "yes" - as Dr. Reinhardt's data show.

In essence, this important insight is no more profound than to observe the purchase of two rakes at the hardware store costs more than one rake, even if the cost per rake has not increased in "x" years.

And while Dr. Reinhardt's findings are certainly welcome they are not, of course, news to insurance professionals including us at InsureBlog.

But, sometimes, it takes an academic study by a respected health economist at a prestigious university to explain the basics to a doubting public.

Thanks be to Dr. Reinhardt for making the explanation !