Richard Gaspar's Profile

"The government doesn't try to reimburse at market rates, and that just results in a lot of cost shifting back to premium payers," he says. "So why would we want to let them set up a public plan that reimburses at those same rates?"

On Sept. 29 advocates of a public option failed to get it included in a key reform bill moving through the Senate. But Speaker Nancy Pelosi (D-Calif.) and her liberal allies have kept the idea alive in the three House bills still in play. It's unclear whether President Barack Obama will demand the inclusion of a public insurance option in any final deal.

Proponents add that government competition would force private insurers to lower premiums, making coverage more affordable for al

Still, many economists suggest business is overstating the level of cost shifting. "This debate has a religious nature to it," says Rick Mayer, an associate professor of public policy at the University of Richmond. While a majority in the industry insists that cost shifting occurs, he says, "most health economists just don't believe in it.

A study by the Medicare Payment Advisory Commission (MedPAC), an independent panel that advises Congress on Medicare issues, bolsters Frakt's argument. The March report looked at historic pricing patterns and concluded that a hospital's market strength—not losses on its Medicare business—causes private insurers to pay much higher rates.

In the 1990s, says MedPAC, private insurers used managed care to curb cost hikes by hospitals, reimbursing only selected doctors and hospitals at predetermined rates. But by 2000 a backlash against managed care by doctors and patients, combined with consolidation in the hospital industry, gave hospitals the upper hand in rate negotiations, and costs began rising again.

Not surprisingly, hospitals with the most market power charged private insurers the most and had the highest overall profit margins, according to the study. By contrast, hospitals that were not able to demand higher payments from private insurers managed to stay in the black on Medicare payments by operating more efficiently, reducing errors, and keeping their costs in check—without any loss in quality of care.

A Congressional Budget Office report issued in December 2008, which also debunked the notion of cost shifting, suggested that hospitals "facing shortfalls in payments" would run leaner, more efficient operations. More efficient hospitals might also reduce their rates for private insurers.

The health-care debate, in all its complexity, really boils down to this: If you are going to cover uninsured Americans, someone will have to pay if the reform plans on the table don't deliver promised savings. And plenty of business executives worry that one way or another, that burden will fall to them.