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  • The Medicare Cost Control Myth

    medicarecostsblog1

    A major talking for public option/single payer proponents is that the government does a better job of controlling health care costs than the private sector. So when Bill Kristol claimed otherwise on the Daily Show, Ezra Klein cited a study from public option/single payer advocate Jacob Hacker purporting to show that between 1997 and 2006, the per enrollee average annual growth  for private health insurance was 7.3%, compared to 4.6% for Medicare.

    But as AEI’s Nick Schulz points out, a 2007 CBO report by Perter Orszag found that between 1975 and 2005, the real per capita cost growth in Medicare was 4.6%, compared to 4.1% for all other health care spending.

    So did Hacker turn night into day on Medicare’s cost-controlling abilities?

    As Heritage fellow Robert Book details, all of Hacker’s factual claims are either false, misleading, or irrelevant to the conclusion drawn:

    1. Medicare benefits are not directly comparable to private insurance benefits, and the source for the figures cited [by Hacker], the Centers for Medicare and Medicaid Services (CMS), makes no claim that the quoted figures are for comparable benefits.
    2. The figures [by Hacker] include only spending by Medicare and private insurance companies, excluding out-of-pocket spending and other sources of funds. They also fail to account for the fact that Medicare is paying a rapidly decreasing share of its enrollees’ total health care costs, while private insurers are paying a stable, even slightly increasing, share of costs for the privately insured.
    3. When payments from all sources are considered, spending on Medicare beneficiaries is increasing faster than spending on the privately insured.

    In other words, Medicare is not controlling costs. Rather, it is allowing costs to grow faster than costs for private insurance but shifting an increasing share of those costs onto other payers, including the beneficiaries themselves.

    Book then outlines how to make a real apples-to-apples comparison on spending growth:

    To make a valid “apples-to-apples” comparison between Medicare and private insurance, we can take the amounts spent on private insurance beneficiaries from each source of funds (from the National Health Expenditure tables) and subtract the amounts spent on those who are beneficiaries of both private insurance and Medicare. This will give us the amounts spent on those who are beneficiaries of private insurance but not Medicare. (To obtain per-beneficiary costs, we divide by the number covered only by private insurance). We can then compare cost growth for the non-Medicare population with that for the Medicare population without any overlap between the two groups.

    Crunching the numbers, we find that between 1997 and 2005 total spending per Medicare enrollee grew at 10.6% annually, compared to 7.7% growth on health spending for the privately insured. Book concludes:

    In summary, to claim that Medicare spending is “controlling health care costs” more effectively than private health plans do, Clemente and Hacker count all of Medicare’s enrollees but only some of their health care costs–the costs paid by the Medicare program. Because Medicare’s share of the total costs has fallen significantly, Medicare appears to control costs better than private insurance does when in fact the opposite is true.

    For an increasing percentage of Medicare beneficiaries, someone other than Medicare is paying more of those costs. When the full cost of health care for Medicare beneficiaries is considered, private health plans are clearly doing a better job of controlling spending growth.

    Posted in Obamacare [slideshow_deploy]

    6 Responses to The Medicare Cost Control Myth

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