• Closing the loop

    It’s convenient to think about health care costs and expenditure organized in two sectors, public and private. But one deceives oneself in thinking they’re independent. A principle problem with control of public health care spending is that public prices can’t deviate too far from private ones. If they do, Medicare beneficiaries will experience access problems, as Medicaid beneficiaries already do. That’s politically untenable, so it won’t happen.

    Thus, public and private payment levels are linked with the consequence is that the extent of public cost control relies on private-sector health care prices. We can jump up and down screaming how we must get the Medicare spending growth rate down. But it will do no good if we don’t also consider how to deal with the private sector too. It’s one system, linked economically and politically, so we must be holistic.

    That’s my takeaway from yesterday’s WaPo article by N.C. Aizenman, “Doctors say Medicare cuts force painful decision about elderly patients.”

    • I was hoping you would comment upon this article. As you always point out, any reform must be politically feasible. If we do manage to cut Medicare costs, but private insurers do not cut their payments, we will then have access problems. That could lead to a political response to aggrieved seniors which would undercut the decreased Medicare spending. And, as far as I can tell, we have even fewer tools to decrease private spending.

      The fascinating question, from my POV, is why do private insurers continue to pay so much? Mind you I am grateful, but as an economic question what they do makes little sense. Graphs you have published here before suggest that there is a linkage between Medicare and private payments such that at times when Medicare payments have gone down, private payments go up. Is this a function of state based insurance?


      • @steve – I hope to publish a paper on the type of cost shifting you point to. Until then, I’m not going to write in depth on it. In the meantime, see the posts under the cost shift tag. I will also note that the linkage isn’t as strong as some graphical depiction suggests. There are other things going on. In particular changes in provider and plan market power play important roles in payment dynamcs.

    • What puzzles me more, and I have had these discussions with folks higher up in well know professional organizations–both procedure based and not–is the “limited supply” of private patients with generous commercial insurance and means to pay OOP, ie, cash only. The same conclusions emanate from these conversations.

      Play out the scenario as AMA conveys: “If Medicare cuts rates, seniors will have grave access problems!” Really?

      How many practices can say no to these patients without cannibalizing the entire eligible pool of so called desirable patients. The patient population will undergo tremendous tumult, and some will no doubt be hurt yes, but a new equilibrium will arise. Of course, Medicaid rates are a non-starter, but a specialist who can do the math will readjust his or her lifestyle to new, lower Mcare rates.

      Make 350K in a 1.0 world, or 300K in a 2.0 world vs. hold your breath, jump up and down, and don’t eat your spinach. That wont pay the bills.

      After a disruption and a helluva lot of noise, providers will readjust. Steve has it right. Private payers will say no if the same denominator of docs want the identical take home pay and want it from the hide of the CUBA’s** .

      My two cents.


      ** = Cigna, United, Blues, Anthem

      • @Brad F – You and steve make plausible points. The question is will the pols take the political risk that things won’t go badly for a key constituency and/or key interest groups? How do the arguments work out under the scenario of near universal coverage? Seems like additional Medicare cuts are likely to be put off until later next decade or beyond. That’s my guess.

    • I tend to agree with Brad F.– Many high-income specialists can, and will , adjust to somehwat lower Medicare payments. (Though as he says, some will hold their breath a d turn blue first.)

      Particularly in some specialties, it would be very hard to keep a practice going without Medicare patients.

      And the vast majority cannot afford to pay more out of pocket. Keep in mind that median total income (including Social Security, investments, pensoin, 401k) for the average Medicare patient is $18,000 a year. (Half earn less than $18,000, half earn more) And Medicare’s co-pays and deductibles are already pretty high for many seniors.

      Secondly, “Why do private insurers pay so much?”
      Because until recently, they found that they could pass high reimburasements on in the form of higher premiums.
      But we’ve reachd a point where neither employoers nor patietns can aborb the higher premiums.

      State regulators (as well as HHS) are pushing back.

      Prrivate insurers know that they are going to have to keep a lid on premiums. This is why they will start parting reimbursements. Private insurers have already indicated (privately) that they plan to lower reimbursements for some services (imaging, some oncology services, etc.) if Medicare goes first. They just want Medicare to provide “political cover.l”