Comparing Medicare and Private Cost Growth

The Alliance for Health Reform held a Capitol Hill briefing today in the Dirksen Senate Office Building to compare Medicare and private sector cost growth. Speakers included Joe Antos of the American Enterprise Institute, Marilyn Moon of the Urban Institute, and Karen Davis of The Commonwealth Fund.

Marilyn Moon presented the results of her analysis that showed Medicare controls enrollee spending growth over time better than private insurers. Since 1970, Medicare’s average annual per enrollee growth rate is 9.6 percent, lower than the growth rate of 11.1 percent for private health insurers. Taken as cumulative per enrollee cost growth over that time period, costs in the private market were 44 percent higher than for Medicare. When differences in service use between Medicare and private enrollees were taken into account, private insurance still experienced a higher cumulative rate of growth per enrollee than Medicare over the three decades. Moon’s analysis, coauthored by Cristina Boccuti, can be found in the March/April 2003 edition of Health Affairs.

Joe Antos said it is difficult to do this type of analysis with the data available because it doesn’t control for every variable. “It’s not just about prices, it’s also about what you get for those prices,” said Antos. Antos’ analysis showed that while spending for private insurance grew 44 percent over Medicare since 1970, the benefits covered by the private plans grew by 80 percent. The real question, Antos said, is whether “private insurance methods would work better than traditional government controls in slowing Medicare growth in the future?” Antos outlined the problems with Medicare’s current payment structure. The federal government has difficulty predicting reimbursement rates consistent with local market conditions, price controls threaten patient access to providers, and the adoption of new technologies and treatments is slowed.

Karen Davis discussed the satisfaction level of Medicare beneficiaries compared to those between the ages of 19 and 64 enrolled in private coverage. Davis’ analysis shows Medicare beneficiaries are less likely to report negative insurance experiences and have less access problems due to cost than the privately insured. More Medicare beneficiaries also report being “very satisfied” with their care and rate their health insurance as “excellent,” compared to private enrollees. These trends held across all income levels and health statuses.

But Antos said lower satisfaction among those with employer coverage is no surprise given many of those with employment-based health insurance lack choices of health plans. Ninety-two percent of all firms offer only one health plan. Antos stressed that the model for Medicare reform is the Federal Employees Health Benefits Program, not employer-based health insurance. “Medicare is still trapped in 1965 in many respects, while the FEHBP keeps up to date with the needs of enrollees. FEHB-style reform would make Medicare responsive to consumers and to changing medical technology,” said Antos.

In response to a question about a Medicare prescription drug benefit, Moon said she was “not worried about government involvement in a Medicare prescription drug benefit,” because “drug manufacturers will always land on their feet.”

–Joe Moser
Galen Institute

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The Alliance for Health Reform held a Capitol Hill briefing today in the Dirksen Senate Office Building to compare Medicare and private sector cost growth. Speakers included Joe Antos of the American Enterprise Institute, Marilyn Moon of the Urban Institute, and Karen Davis of The Commonwealth Fund.

Marilyn Moon presented the results of her analysis that showed Medicare controls enrollee spending growth over time better than private insurers. Since 1970, Medicare’s average annual per enrollee growth rate is 9.6 percent, lower than the growth rate of 11.1 percent for private health insurers. Taken as cumulative per enrollee cost growth over that time period, costs in the private market were 44 percent higher than for Medicare. When differences in service use between Medicare and private enrollees were taken into account, private insurance still experienced a higher cumulative rate of growth per enrollee than Medicare over the three decades. Moon’s analysis, coauthored by Cristina Boccuti, can be found in the March/April 2003 edition of Health Affairs.

Joe Antos said it is difficult to do this type of analysis with the data available because it doesn’t control for every variable. “It’s not just about prices, it’s also about what you get for those prices,” said Antos. Antos’ analysis showed that while spending for private insurance grew 44 percent over Medicare since 1970, the benefits covered by the private plans grew by 80 percent. The real question, Antos said, is whether “private insurance methods would work better than traditional government controls in slowing Medicare growth in the future?” Antos outlined the problems with Medicare’s current payment structure. The federal government has difficulty predicting reimbursement rates consistent with local market conditions, price controls threaten patient access to providers, and the adoption of new technologies and treatments is slowed.

Karen Davis discussed the satisfaction level of Medicare beneficiaries compared to those between the ages of 19 and 64 enrolled in private coverage. Davis’ analysis shows Medicare beneficiaries are less likely to report negative insurance experiences and have less access problems due to cost than the privately insured. More Medicare beneficiaries also report being “very satisfied” with their care and rate their health insurance as “excellent,” compared to private enrollees. These trends held across all income levels and health statuses.

But Antos said lower satisfaction among those with employer coverage is no surprise given many of those with employment-based health insurance lack choices of health plans. Ninety-two percent of all firms offer only one health plan. Antos stressed that the model for Medicare reform is the Federal Employees Health Benefits Program, not employer-based health insurance. “Medicare is still trapped in 1965 in many respects, while the FEHBP keeps up to date with the needs of enrollees. FEHB-style reform would make Medicare responsive to consumers and to changing medical technology,” said Antos.

In response to a question about a Medicare prescription drug benefit, Moon said she was “not worried about government involvement in a Medicare prescription drug benefit,” because “drug manufacturers will always land on their feet.”

–Joe Moser
Galen Institute

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About the author