Cost transfer is a common practice in various industries, including healthcare, where costs are shifted to higher-income segments to allow low-income citizens access to medical care. It can also occur in the airline industry and is sometimes necessary to avoid layoffs or reduced services.
Cost transfer is an economic practice that allows meeting cost demands by transferring part of the liability to another group of payers. There are many industries and companies involved in shifting costs, although healthcare is perhaps the most common example. Some see cost shifting as necessary to avoid losing jobs or decreasing services due to unpaid costs. Critics often characterize it as a means to boost already healthy profits by forcing some segments of the population to overpay.
At a basic level, one of the main factors in changing costs in medical practice is that not everyone can afford medical services. To that end, government medical agencies such as Medicare will reduce the financial burden on low-income citizens by setting prices they can charge Medicare patients that are often well below the current rate for services. To make up for this shortfall, hospitals and physicians may choose to charge patients private insurance, or those who pay themselves, more for services. The cost is actually shifted to higher-income parts of the population to allow those in poverty to access medical care. Even this basic explanation, however, is just one way of looking at changing costs; depending on your point of view, this practice can be a necessary part of social services or highway robbery capitalized on by hospitals and insurance companies to increase profits.
Changing costs can also apply to how a service is paid for. Employers who offer health care benefits to employees often share a percentage of the cost of the insurance plan with their workers. If money is tight, however, thanks to a recession or bad business, employers can shift more of the financial liability onto employees. In many cases, this is not the result of a quest for additional profits, but a way to allow the company to stick to the plan. Shifting costs in this way can sometimes allow everyone to stay safe or reduce the need for time off and layoffs due to reduced expenses.
The airline industry is another place where changing costs can occur. If the price of fuel increases significantly, airlines can respond by charging higher ticket prices, but they can also change costs by making previously free services optional and available for a price. Carrying bags, food and drinks and Wi-Fi access can be variable costs so that the same services can be available despite the increased financial responsibility.
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