• Chart of the day: Medicare vs. employer-sponsored insurance cost growth

      12/12/2012
      Austin Frakt

    That’s from a new Commonwealth Fund report.

    @afrakt

     
      Health Policy
      employer-sponsored health insurance, health care costs, Medicare
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    • by Weiwen on December 12th, 2012 at 11:13

      Readers also need to remember that Medicare covers seniors and the disabled. Those people are expensive. Employer-sponsored insurance generally covers people age 21- just before 65. Those people as a class are cheap. You could well expect costs to grow faster for the Medicare population than for others.

      For example, people age 30 probably see the doctor a few times a year and have a couple of prescriptions. They may have a major hospitalization once before they turn 65. Most people age 65 and older have multiple chronic diseases and prescriptions. They are pretty likely to be hospitalized more than once before they die. They are pretty likely to need rehabilitation services. Etc.

      I’ve heard people say that Medicare does not match commercial insurers on some performance aspects. Fee-for-service Medicare isn’t as good about coordinating services and managing diseases, for example. This may well be true. But coordinating services will not solve our healthcare cost problem on its own. Medicare controls costs through “dumb” means like administrative pricing, but when you zoom out to the ten thousand-foot level, those “dumb” methods have been pretty effective. They have been more effective than private insurance.

      At this point someone is going to bring up the cost shifting argument, that Medicare under-reimburses and therefore inflates the cost of private insurance to compensate. That’s the wrong question to ask. The appropriate question is why are providers’ costs so darn high?

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      • by Jeremy N on December 12th, 2012 at 11:48

        It seems you’re making the point that we should expect Medicare’s costs/enrollee to rise faster than private because people on Medicare are more expensive, but that doesn’t follow. People on Medicare were more expensive in the past ten years, and they will be more expensive in the next ten. The relative difference would have to grow.

        Admittedly, that could happen in several ways. Medicare benificiaries and non-Medicare insurees could have the exact same health requirements as they did the last ten years, but prices increased uniformly.

        Or, in general, if whatever’s causing the cost increases affect seniors more so than non-seniors, then costs would rise faster in Medicare.

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        • by Austin Frakt on December 12th, 2012 at 12:04

          Thinking out loud: I wonder if it is (or could be) a stylized fact that a typical new health technology is going to have more applicability to an older, sicker population than a younger one. If that is, on average, the case, then one would expect more rapid spending for the old and sick than for the young and healthy.

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          • by Weiwen on December 12th, 2012 at 20:50

            Well, because the human body is extremely complicated, there is going to be a diversity of technologies, and many will be more applicable to everyone else than to seniors. Big example could be ADHD medication.

            But treatments for chronic illnesses are very profitable, because you obviously have to take them repeatedly for quite some time. Chronic illnesses are more prevalent among seniors. I imagine that many conditions that require some sort of implantable medical device or replacement joint part are more prevalent among seniors. Seniors are a growing share of our population as well. So, medical technology is going to be biased towards conditions prevalent among seniors.

            I don’t think we can say that it’s a stylized fact that new medical technologies are going to be more applicable to seniors than everyone else, but I think you can make the case that the AVERAGE medical technology is so.

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    • by Jeremy N on December 12th, 2012 at 11:35

      I’m not sure I understand the purpose of this post. It omits so much information that I think it is pointless. People should beware of statistics that are presented without any explanation because you can always find a statistic to back up your point of view.

      There were two questions I had upon seeing this graph: what are the differences in levels (not growth rates) and what’s the explanation for the numbers in this graph. To answer the latter question, I went to the source of the material which, in turn, pointed me to its source (because it didn’t offer explanation either).

      The reason the projected government growth rate is lower than the historic government growth rate is because of the Medicare cuts in the ACA. If those cuts have no effect on health outcomes or the economy in general, then this is a great cut, but I have my doubts. Another reason is that these numbers assume the doc fix will not occur, which it almost certainly will.

      The other problem I have with this graph is that it’s implication is that government-run health care is (in one way) better than what the free market can provide. But I suspect one reason the private insurance costs are going up is because of the many requirements the government puts on it. My insurance increased substantially over the past two years because of new regulations (or so my insurer says).

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      • by Austin Frakt on December 12th, 2012 at 11:42

        The purpose of such posts is to generate discussion, not settle any questions. It’s a blog.

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      • by steve on December 12th, 2012 at 12:47

        Mine dropped for the first time in 20 years. Because of the ACA? I think we should be careful of anecdotal evidence since it is easy to find a single case supporting what you want to believe.

        Your question about levels is a good one and I am not sure how to answer it. 65 and up is almost always covered by Medicare, or as part of a group plan if they are still employed. It is difficult to find appropriate data. However, per procedure, Medicare usually pays just about 80% of what private insurers pay.

        Steve

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      • by Sebastian on December 12th, 2012 at 13:53

        It’s important to note that the same insurers who are pushing high premium increases this year and blaming them on ACA (e.g., Blue Cross) are the same ones who were pushing high premium increases in 2009, when it looked like passing a health care reform bill would be impossible. So maybe it’s best not to rush out and blame ACA for the increases.

        Also important to note that the 2000s saw employers beginning large-scale implementation of deductible health insurance plans, FSAs, and self-funded plans. All of these products are supposed to lower costs and make consumers more price-conscious and none of which are subject to more regulation (in the sense of creating barriers to market pricing) than standard HMO plans. Yet we saw unprecedented increases in growth rates in premiums in the 2000s.

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    • by David C on December 12th, 2012 at 12:22

      As has been said many times on this blog, the main problem is that US providers get reimbursed much more than providers in other developed countries. Medicare does a better job of controlling cost increases because its market power allow it to dictate prices.

      I currently live in a place (Switzerland) where doctors don’t expect to be the richest family on the block, and it really changes the healthcare experience.

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      • by Floccina on December 12th, 2012 at 13:41

        I currently live in a place (Switzerland) where doctors don’t expect to be the richest family on the block, and it really changes the healthcare experience.

        It interests me that I can think of 2 ways to lower doctors’ pay, you can make it easier to become a doctor or you can use price controls. Some would argue that if we make it easier to become a doctor that will lower quality but in he long run price controls will have a similar effect.

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    • by BenefitJack on December 13th, 2012 at 09:22

      Not at all surprising.

      Results from:
      – Provider cost shift from Medicare and Medicaid to employer-sponsored plans – see Milliman 2008 study (perhaps you have something more recent?) I found by googling – hospital-physician-cost-shift-RR12-01-08[1].pdf) Someone previously misstated this as the result of their ability to dictate prices to providers through market power – which suggests a “negotiation” that never happens. .
      – For the periods shown, ever younger Medicare beneficiaries as a group within the Medicare-eligible population
      o The blowout approval rates for social security disability recipients, including blowout approval rates for ALJ decisions where the individual was twice rejected at lower claim and appeal levels,
      o The baby boomers aging into the system.
      – The use of percentages, versus the use of dollar amounts .

      When discussing Medicare and Medicaid with participants, I often enjoy watching the expression on their faces when I document/confirm that:
      – Almost all employees pay more for Medicare Part A coverage for current beneficiaries than they pay for their own single employee coverage – in terms of the impact on take home pay,
      – Expose the portion of their income taxes (general revenues) and/or additions to the national debt that must be paid by future taxpayers that is going to pay for the remainder of the Medicare program.

      Much also depends on the survey data used for employer sponsored plans – because there is a dramatic variation in coverage which, unless someone is careful, could skew the data. For example, it is not clear whether the CMS data is measuring the same health plan designs, on a year over year basis – given that many, if not most employers do not have the same options in place in 2011 as they had in 2008. Said another way, my own health coverage today is nothing like the coverage I had in place in 2008. Using the annual Kaiser Family Foundation survey, the average annual change in the cost of coverage has been about 4.5%, however, that ignores changes in point of purchase cost sharing – for example the change deductible amounts during the same period (for a PPO) was 7% – to say nothing of the dramatic growth of High Deductible Health Plans over the same period. Perhaps the CMS data was “all in” – including out of pocket costs as well?

      If not, this isn’t even an apples to oranges comparison. The chart says less than nothing as it does not tell the entire story and it implies that Medicare is somehow more efficient at controlling costs. Sure, the government can always control the costs of their programs by shifting them to someone else.

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