• Medicare and facts

    John Goodman and Thomas Saving have published a post at Health Affairs that aims to dismantle the notion that Medicare spending grows more slowly than private sector health spending. My comments:

    1. The authors claim that private costs are overstated because cost sharing has gone down in proportional terms. But the trend in cost sharing is, itself, an effect of the private system. Also, cost sharing has gone up in absolute terms.
    2. It seems as if Goodman and Saving missed my post about the CBO figures they use. The CBO doesn’t even agree with how they’re using them.
    3. Except during the late 1980s, the vast majority of reductions in Medicare spending (relative to trend) resulted in cost cutting, not cost shifting [summary in this post, among others].
    4. I’m not as impressed as the authors are with the extra benefits delivered by Medicare Advantage. Each taxpayer dollar spent on additional benefits delivered by Medicare Advantage is valued by beneficiaries at a mere 14 cents [summary in this post, among others].
    5. Administrative costs on the private side are not just those due to insurers, but also those incurred by providers. Some of that is Medicare “red tape”. A lot is due to the myriad of different, private insurance coding and billing systems, procedures, and requirements.
    Now, in light of these facts (and links that back them up), is it a slam dunk that private spending has grown more slowly than Medicare’s? It’s not so clear to me.
    • I was wondering if you would respond to this. 🙂
      My favorite part was when Goodman/Saving refused the comparison of administrative costs because activities such as sales and marketing no longer make it an apples to apples comparison.
      Duh! That is exactly our point! Because Medicare doesn’t have to do this is what makes it more cost effective!

      • Chaco – you do not understand — Medicare plans ARE marketed, by the private insurers that CMS allows to sell it. Check the newspapers during Medicare open enrollment in the fall — you’ll see huge ads by private insurers touting their Medicare plans. So, are those ads insurer overhead or Medicare overhead? If you answered the former, you need to watch this shell game more closely. And when brokers sell a Medicare plan, they get a commission, just as they do with a private company product. So, sales and marketing are part of Medicare expense, whether Medicare counts it, or makes the private insurer count it.

        What the “Medicare for all” crowd FAILS to understand is that Medicare is not a government HEALTH CARE system, it is a government PAYMENT system. And all the failures — in lives and treasure — of the private sector DELIVERY system (that’s your doctors and hospitals) still exist, no matter who signs the check. That’s what we really have to fix, probably with financial incentives, because that’s what seems to get providers’ attention.

    • Government payments are about half of medical spending. Much of the remaining medical spending is through employer plans, which in many ways are just another form of socialized health spending (socialized by employers rather than government). In our health care system public and private are so intertwined that bending the cost curve will require fixing both public and private.

      One important note: An example where providers work in sectors of medicine paid for by third-parties and have cash-paying practices is cosmetic surgery. An index of cosmetic surgeon fees shows prices increased more slowly for those services that are outside third-party reimbursement. That is the type of consumerism we need to harness if we’re to bend the cost curve down.

      • Devon- Cosmetic surgery should be compared to getting a tattoo, not medicine. It is completely elective, and both parties can walk away should they be unhappy with the deal. This does not apply to much in medicine.


        • @ Steve

          Can’t you make the same argument about food? Food is not completely elective. Without it I would ultimately die. But (unfortunately) I have enough excess energy stored as fat that I can afford to check out the local Kroger’s if the Tom Thumb is too expensive. Only a small amount of medical care is so urgent that it cannot wait a few days. Moreover, I don’t have to put much effort into verifying my local Kroger’s prices are reasonable because of the competitive nature of the grocery industry. Unlike my local hospitals, the list prices for goods and services at my Kroger’s does not vary by a factor of three when compared to Tom Thumb.

          • Nope, because you have very, very many alternatives for any particular kind of food. You have valid substitutions so that you, the buyer, and the seller can both walk away from any deal. For any given procedure there are limited other options and, for most of us, very limited choices in who can perform the service. Our hospital has put a lot of effort into marketing, )I have lunch with the marketing guys every now and then and play poker with one of them) finding that very few patients are willing or able to leave their area, even when we advertise better care, lower prices and nurses with the biggest boobs.


    • @ Austin

      You continue to miss the point. It is Krugman and Reich who are making the wild claims.Tthey have the burden of proof. Our main point is they cannot back up what they claim.

      @ ChacoKevy

      You also miss an important point. In place of sales and marketing, Medicare gets its money through taxation. It turns out that the social cost of taxation is very high. When all such costs are considered, Medicare has higher, not lower administration costs. This is borne out in several reputable studies of the issue.

    • Quibbling over minutiae about which cost is growing and why may successfully nibble at corners of the Goodman/Saving argument, but their central point is much larger and far more correct–the weight of the evidence is overwhelming! We can keep getting this wrong, but for so long as we do the costs continue to rise and today’s–and tomorrow’s and future tomorrow’s–taxpayers will have to pay them. So thanks for standing up for the insurers, other third-party payers, government and industry functionaries and anyone else who has a dollar to make on the backs of America’s seniors. Paul Krugman and Robert Reich should be smiling.

    • I think the authors did address point 2. Their post states “The ‘other’ category includes the uninsured as well as out-of-pocket spending by Medicare enrollees.” Maybe that wasn’t a strong enough caveat?

      Also, I think an important argument they make is that the administrative cost comparisons should be denominated in enrollees instead of total costs because the recipients probably have different total costs. I’ve never seen anyone try to debate that claim, though liberals often ignore it.

      Note: I work with one of the authors of the post, though I had no part in writing the post, and I have never discussed these matters with him.

    • They complain that the 2% overhead for medicare “ignore the substantial administrative cost that Medicare shifts to the providers of care” and “the cost of collecting taxes”, and then proceed to ignore the administrative costs that private insurers shift to providers of care, the administrative costs that private insurers shift to employers, and the administrative costs that private insurers shift to consumers and the courts when they rescind or dispute valid coverage.

      The cited studies by CAHI and the Manhattan Institute analyze medicare’s administrative costs holistically, but not the private system’s. So far as I can see the same is true of the rest of their argument. It’s all jive.

    • The other part that gets ignored, is the cost to the consumer of dealing with their insurance company. I have never seen this estimated anywhere. Just as it costs us providers much more to deal with private insurance, it takes patients much more time to deal with private insurance claims. Should you ever develop a significant illness, you will get to experience this first hand.

      “It turns out that the social cost of taxation is very high.”

      I think only about 40% of the country believes this. This is argument by assertion.


    • One importance of taxation is it is where medicare can get its money back. I think the administrative cost is also less.

    • Tom and I used a CBO table that compared spending growth rates relative to GDP. However, Linda Gorman has produced another CBO table that reports spending rates by themselves. Linda’s table makes our point more forcefully than we did.