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Friday, May 13, 2011

No Evidence That Privatizing Medicare Improves Cost Control

Uwe Reinhardt says the argument that privatization lowers health care costs "is, at this point, faith-based analysis":

Would Privatizing Medicare Lead to Better Cost Controls?, by Uwe E. Reinhardt: The annual Milliman Medical Index, released earlier this week ... is particularly timely as the nation considers proposals to reduce sharply the role of the federal government in financing health care, along the lines proposed by Paul D. Ryan...
The index measures the total cost of health care for a typical American family of four covered by a preferred provider plan, widely known as a P.P.O. The index’s great virtue is that it includes not only the employer’s and employee’s contributions to the premium for P.P.O. coverage but also the out-of-pocket expenses the family has under the plan.
Employers can control the growth of health insurance premiums by shifting more and more of the cost from the insurance policy to the family’s budget, through higher deductibles and coinsurance or by excluding benefits from coverage that had previously been covered. ...
...Over the decade, the index exhibited an average compound annual growth rate ... of 8.8 percent, although, in recent years, that rate has ranged between 7 and 8 percent... In recent years, the growth in employee compensation has hovered beneath 3 percent.
In other words, health care is chewing up employees’ paychecks like Pac-Man in the famous arcade game. And there is considerable empirical evidence that the employer’s ostensible contribution to the employee’s health-insurance premiums actually comes out of the employee’s take-home pay. ...
Milliman data do not suggest that superior control over total health spending — as opposed to controlling premium growth through cost-shifting to private household budgets — is among the industry’s strengths. To argue that the industry can do so is, at this point, faith-based analysis.
Indeed, a December 2010 report by the American Health Insurance Plans, or A.H.I.P., the industry’s trade association, itself cast doubt on that score. ... The available data do not lend credence to the prediction sometimes made in connection with the Ryan plan for Medicare that private insurers will be able to control the overall health spending of elderly Americans any better than traditional Medicare has been able to. ...

I think that:

We know what works for health care cost control. Other countries deliver universal care at lower costs and similar quality, and I believe that once we’ve tried other avenues that fail, this is where we will end up. There will be lots of false starts, delays and dead-ends along the way—and a voucher program, if pursued, is one of those dead ends. But the day will come when we realize that using successful systems in other countries as models for reform is the best way to provide universal access to health care at the lowest possible price.

    Posted by on Friday, May 13, 2011 at 01:17 PM in Economics, Health Care | Permalink  Comments (90)


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