• Levels vs. changes

    By email, I received the following reaction to my post on public vs. private health care cost control.

    Medicare is less than 50 years old. Per person spending has exceeded Medicare growth for 40 years and still has not approached the per person cost of Medicare OR Medicaid. Do you not find that odd to the point of being an obvious LIE??? Medicare spending per person is more than 25% higher than private health care plans per person spending NOW.  And Medicare has strict and LOW price controls. If 40 years wasn’t enough to equal Medicare OR Medicaid spending per person, why would a decade or a little more be enough.

    Oh my goodness!

    Whoever wrote the above has a point, one I agree with. Of course per person Medicare spending exceeds that of the private sector. The program serves the elderly and disabled. Commercial market plans serve the non-elderly and, mostly, healthy. No argument there. The spending level of Medicare, per person, is above that of the commercial market. Point granted.

    But this has nothing to do with what I wrote. My point was about spending growth, not spending levels. “The rate of growth in per person spending by private health care plans has exceeded that of Medicare for 40 years.” Follow the link.

    See the words “rate of growth”? I put them in bold so they stand out. They mean I’m considering how spending changes, not its level. By looking at changes, not levels, one is partially controlling for the differences in the populations the two types of insurance serve. Also, by looking at per person spending growth, one is controlling for the size of the populations. What is not controlled for are differential changes in the Medicare and commercial market populations over time. Maybe the average Medicare beneficiary became more healthy over time than the average person with commercial market coverage. If one wanted to quibble, that’s where to go.

    And yet, this is just one piece of evidence in a mountain of others that all point the same direction. For example, “Government payments to private, comprehensive Medicare plans (Medicare Advantage) have been well above the cost of the program’s public option (traditional Medicare) for years.” Perhaps some Medicare Advantage plans in some markets can provide the basic Medicare benefit at a lower cost than Medicare itself, but they provide extra benefits, and we pay more for them.

    As I wrote in the piece, people who just believe private plans do it better will make all manner of absurd comments about the evidence. Yet, so far, I’ve not seen them put forth any evidence of their own that shows that private plans control costs better. If I saw any such evidence, I’d post it. I’ve asked for it many times. I’m still waiting.

    I advise anyone still uncertain about which sector exerts greater control over costs to read the post carefully. Note that the health care industry itself is not confused about this. Shouldn’t they know? Note also that at the end of the post I have added a link to more evidence. There is also a podcast on this topic. See the podcast archives.

    Links to all of this are also found in the FAQ entry.

    • This trope always bothers me also. Advocates for private insurance like to point out that it costs less per person than Medicare. They seem to forget to ask why that might be so. You would think none of them had ever visited a hospital.


    • I was about to say – the best evidence I would be able to marshall in favor of private insurance is the MA plans that would be cheaper than fee for service Medicare. You’re correct that right now we overpay them and that they provide extra benefits, but that could be fixed in theory.

      The problem is that the majority (iirc) of MA plans are managed care plans. I suspect the ones that are cheaper than FFS would be the most tightly integrated plans. And I’m not sure if the conservatives notice this, but Americans hate managed care. For that matter, conservatives who place a premium on patient choice should be wary of managed care, because it does constrain choice for both patients and providers.

    • 1. I won’t repeat previous statements about the significance of this aspect of the empirical record here, but it’s worth noting that as a patient cost matters, but only as part of a larger set of variables. No one thinks about cost as a unitary variable at the heart of a stand-alone Cartesian axiom. Cost is a denominator beneath a complex and dynamic set of variables. E.g. value = (Actual Medical benefit + heterogeneous and dynamic set of subjective intangibles)/cost.

      This was quite clear during the HMO PR debacle of the 90’s. Yes – this model was better at containing cost growth than the alternatives, which is fine if that’s your only objective. You can certainly diminish the magnitude of the denominator by paying less for the same care, and rationing it. That’s easy to accomplish via a centralized price regimen and rigid, algorithmic restrictions on access, and the government can impose those on patients and providers better than anyone else. It’s not clear that the centralized price regimen + restrictive access algorithm provides the right incentives or framework for anything in the numerator, much less all of it – so it’s a puzzle to me why anyone thinks that once they’re in place they system they lie at the heart of will be looked upon as anything other than a mega-HMO from hell.

      2. Any comment on the delta between prices negotiated directly between patients and providers, and contract prices negotiated between public and private third parties (shown in link below)? E.g people paying out of pocket are getting about the same prices as Medicare, and less than private insurers. Lots of potential for patient selection bias, vastly different sample sizes in each cohort to confound the results, etc – but it raises an interesting question, Even if you accept that Medicare beats private insurers when it comes to putting a lid on prices, how much evidence is there that it performs this function better than consumers are able to on their own when they are incentivized to do so?