• Table and chart of the day: Components of health spending growth by payer

    It’s possible I fall in love with tables and charts a little too readily. It’s a character flaw. But I do adore the one immediately below. It’s from the recent paper by Amitabh Chandra, Jonathan Holmes, and Jonathan Skinner (PDF), about which Adrianna blogged last week. It shows price, per enrollee utilization, and enrollment growth for Medicare, Medicaid, and private payers over 2008-2012.

    What I like about the table is that it’s so simple. Yet it reveals so much. It plainly shows that Medicare controls prices about as well as you could ask: 0% growth. Medicaid does a decent job at that too. Private payers, not so much. Wonder why your premiums went up? That private payers coughed up an average of 3.6% higher prices each year is a big reason, though not the only one.

    Per enrollee utilization is another story. Here, Medicare is terrible, with 2.5% growth in that category. Medicaid also showed growth, about in line with private payers at 1%.

    The simple take-away is that Medicare and Medicaid control prices very well and private payers control utilization somewhat (though no better than Medicaid).

    As for enrollment growth, the Medicare figure is due to the aging of the baby boom generation. The Medicaid one is driven in large part by the economic downturn. And the negative private payer figure is a combination of both factors. (If the other two go up, something has to go down.)

    Not accounted for in this table is spending for

    investment in facilities and innovation, and government spending for a variety of other programs, many of which supplement the primary Medicaid and Medicare programs (for example programs to help pay for Medicare deductibles among Medicaid-eligible enrollees) or which support health care for the military, such as Veterans Affairs (VA).

    Per enrollee spending growth is illustrated in the figure below. Private premiums dominate. Medicare and private payer spending are close to one another in recent years. Medicaid is amazingly flat.

    And yet, it’s Medicaid that everyone (well, not everyone) wants to cut. Don’t believe the hype that it’s because it’s so expensive. Sure, it costs more as more people enroll in it, but its per person spending pales in comparison to that of other types of coverage. A high income American receiving the employer-sponsored health insurance tax subsidy actually costs taxpayers more than an average Medicaid beneficiary. A Medicare beneficiary certainly costs more. Though I haven’t run the numbers, I’m sure that’s true even adjusting for age and health status. The real reason Medicaid is routinely on the chopping block is because poor Americans tend not to vote, and they’re largely invisible to wealthier Americans.

    About this chart, see also Paul Krugman.


    • Why is 2.5% growth in Medicare utilization terrible, especially when combined with no real price growth? I would have thought more care at no additional cost would be a good thing.

      Research shows politicians are more responsive to those with high income than low income, and it isn’t because of voting rates. For example “Larry Bartels’ analyses of Senators’ voting patterns and the preferences of their low, middle, and high income constituents shows that little of the representational inequality he documents can be accounted for by class differences in turnout, political knowledge, or contacting elected officials” http://themonkeycage.org/2012/08/15/economic-inequality-and-political-power-part-3-of-3/ Also see http://themonkeycage.org/2012/08/13/economic-inequality-and-political-power-part-1/ and http://themonkeycage.org/2012/08/14/economic-inequality-and-political-power-part-2-of-3/

    • Would Medicare growth increase if people close to Medicare eligibility lost jobs & insurance during the crash, and then deferred medical care until they became eligible for Medicare?

    • So, the difference in real growth rates of prices is the result of … what?

      I read past posts arguing that the lower Medicare/Medicaid reimbursement rates do not shift costs to private payors – and the criticisms of Milliman and other studies. Perhaps that is so where the VA negotiates what it will pay for Rx (and “enforces” that with their formulary/preferred drug list – denying access to those medications where pricing is not favorable). But, are RBRVS and DRG and other Medicare/Medicaid pricing schemes “negotiations”? When PPACA lowers projected Medicare reimbursements $716B over ten years to fund PPACA coverage expansions, is that “negotiation”? In fact, wasn’t that one of the loudest criticisms of the coverage expansion known as Medicare Part D – that Rx prices were not “negotiated” (other than, of course, the PDP’s power to negotiate)?

      In cost accounting, you learn about contribution margin – the fraction of sales revenue that contributes to offset fixed costs. Unit contribution margin is the amount each unit sale adds to profit. Providers I know confirm there is no “unit contribution margin” on their Medicare/Medicaid patient population.

      In the past blog post, one individual used an analogy of the shopper’s card at their local supermarket. Those with the “loyalty” care pay less, others pay more. The difference there, of course, is that the individual gets to decide – and can vote with her feet.

      However, government now covers nearly 50% of the population (if not over 50% starting in 2014 after the pending Medicaid expansion and likely decline in employer-sponsored coverage). Providers and insures have certainly adjusted (e.g., recent Cleveland Clinic announcement).

      Call it what you will, but after 30 years as a health coverage purchaser, the impact of Medicare/Medicaid reimbursement rate policies on prices paid by private payor coverage is obvious to this plan sponsor.

    • “But, are RBRVS and DRG and other Medicare/Medicaid pricing schemes “negotiations”? When PPACA lowers projected Medicare reimbursements $716B over ten years to fund PPACA coverage expansions, is that “negotiation”?”

      The answer to all of questions is a categorical “No.” This is also the correct answer to the question “Would it be possible to maintain our existing capacity to provide medical care if all reimbursements were paid at Medicaid rates.”

      Controlling prices by government fiat is one thing, controlling costs through improved efficiency and productivity is quite another. Of the contributors here, I think that Austin, at least, understands this distinction – so the argument must be that in the existing equilibrium the set of distortions and transfers necessary to fund Medicaid and/or cover the gap between what it actually costs to provide a given unit of care….are much less objectionable than all of the others, such as those that arise from the use of pre-tax money to fund the purchase of employer sponsored health insurance.

      If *that’s* the argument, I’d be willing to concede that point.

    • Obviously, as you recognize in the following sentence, there is more to controlling costs than just prices charged otherwise we wouldn’t be facing a fiscal crisis in Medicare. If Medicare was a private business we would see how far that model would take us…. Business Failure. As everyone knows prices tell us a lot more than the dollar amount. Among other things prices indicate the value of a product and help to distribute it along with increasing and decreasing the amounts of product based upon realtime need. The way the government manages Medicare, prices have lost their ability to inform us of these things and that is one of the reasons that Medicare is a fiscal nightmare.

      Medicaid: We lament the cuts in Medicaid because poor people don’t vote [“The real reason Medicaid is routinely on the chopping block is because poor Americans tend not to vote, and they’re largely invisible to wealthier Americans.”]. That is really not an informative statement. The fact is that poor people didn’t vote when Medicaid was passed. That indicates that there is a flaw in the program causing many individuals that might support Medicaid to shun it. Perhaps too many believe the program is spending money in a way not intended when the voting public supported the program. Solution: Clean up the Medicaid program.