Today’s Managing Health Care Costs Number is 50
Paul Krugman posted two charts in his blog over the weekend.
The firstshows that Medicare has historically been much better at controlling costs than private insurance. This is a reboot of a famous chart by Tom Bodenheimer entitled “The Not So Sad History of Medicare Cost Containment in One Chart”, which itself was a response to a chart from Drew Altman despairing of how to ever control health care costs, called “The Sad History of Cost Containment in One Chart”. I’ll attach these other two charts at the bottom of this post.
It’s no surprise that Medicare can control costs better than private insurers.
1. Medicare has enormous volume – it is the plurality payer for almost every physician (except for pediatricians and obstetricians), and Medicare essentially can make a market with its coverage and reimbursement decisions.
2. Medicare can unilaterally declare prices, and need not negotiate with providers. Providers can opt out of Medicare, but for most physicians that’s simply not a viable option based on volume.
3. Medicare fraud rules are severe – up to lifetime bans from participation as well as civil and criminal penalties. That’s not to say that there is not a lot of Medicare fraud – but rather to say that smart practitioners see more of a downside to “game” Medicare bills than to be creative in billing private insurers.
4. Medicare spends nothing (nothing!) on marketing. There’s no competition, so marketing is unnecessary.
5. The high costs of taking care of the elderly mean that administrative costs are low as a percentage of the total budget.
6. Medicare takes care of those who are older, and at the upper edge of age, we are appropriately reluctant to exert every last bit of new technology. We feel less willing to show any restraint
Medicare’s ability to control prices is the reason why the CBO ranked a “public option” as cost saving (with 5-7% lower premiums) as Congress was debating the Affordable Care Act. Many worried at the tiem that a public option with the negotiating powers of Medicare would destabilize the commercial insurance marketplace. That’s probably true.
Krugman’s second graphic shows that the recent slowdown in medical inflation, which was especially prominent in Medicare due to provisions of the Affordable Care Act which lowered hospital price increases, means that there is no entitlement crisis at all. Medicare and Social Security will stabilize at about 6% of the GDP, even as our population ages and medical care continues to improve.
Happy birthday Medicare!
Bodenheimer, Health Affairs 2002 The Not-So-Sad History Of Medicare Cost Containment As Told In One Chart
