Medicare Doesn't Make Health Care Industry Lobbyists Disappear

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Monday, 11 March 2013 04:11

The Washington Post once again left its readers stumped. It printed an op-ed column by David Goldhill, the president and CEO of the Game Show Network, the main point of which seems to be that Medicare must still confront rent-seeking by health care providers.

Goldhill apparently is arguing against the merits of expanding Medicare or adopting a single payer type system in the United States, telling readers:

"Single-payer advocates contend that other nations have managed to better control health-care spending — volumes and prices — by enforcing a true budget for cost. But any review of how our Medicare system actually works illustrates why a single-payer system would be so difficult here: Our government has a pervasive inability to say “no.” Only in the United States is public health care an unbudgeted entitlement: Our government promises to pay for any care seniors need and providers respond by relentlessly expanding the definition of need. It’s no coincidence."

This statement implies that Medicare somehow does worse in containing costs and preventing unnecessary procedures than private insurers. The data does not support this claim. According to the Center for Medicare and Medicaid Services (Table 3), the per person cost of Medicare has consistently risen less rapidly than for private insurers. Over the whole period from 1969 to 2011, costs in Medicare rose by an average annual rate of 8.6 percent compared to 9.9 percent for private insurers. For common services the gap was even larger, 7.9 percent compared to 9.3 percent. (Medicare has expanded services, most notably the prescription drug benefit. This expansion reflected the fact that prescription drugs were a trivial expense when the program was created in 1966 and therefore were not covered.)

In the most recent period, 2007-2011, the gap was even larger with annual costs rising 3.6 percent in Medicare and 5.3 percent for private insurers. For common benefits the numbers are 2.8 percent and 5.6 percent.

While lobbyists of providers will certainly try to push for higher payments for their clients, the evidence is that Medicare is still more effective in containing costs than the private sector. To bring costs in line with those in other wealthy countries it will be necessary to impose more market discipline on doctors, drug companies, medical equipment suppliers and other providers, but it seems clear that Medicare is better equipped to do this than private insurers.