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 August 19, 2009

The Real Impact of a Public Plan

Arguments for the creation of a public health insurance plan are grounded in four key claims. In “Illusions of Cost Control in Public Health Care Plans,” Heritage expert Robert Book, Ph.D., explains that all four are false.

The first claim is that “Medicare has controlled cost growth better than private-sector health plans.” The reality is that “when payments from all sources are considered, spending on Medicare beneficiaries is increasing faster than spending on the privately insured.” The amount Medicare spends per beneficiary is growing slowly, but Medicare is paying a shrinking share of its beneficiaries’ total health costs. The total amount spent on health care for individuals enrolled in Medicare is actually growing faster than the amount spent on individuals in private insurance.

The second claim is that “Medicare’s administrative costs are lower than the private sector’s.” The reality is that “per beneficiary, Medicare’s administrative costs are substantially higher than the private sector’s.” Medicare appears to have lower administrative costs because these costs are usually expressed as a percentage of total health costs. But because Medicare beneficiaries are all elderly, disabled, or diagnosed with end-stage renal disease, they have high total health care costs. Even though administrative costs are high in Medicare, when they are divided by the very large total health care costs within Medicare, the resulting percentage is small.

The third claim is that “bargaining power of public health insurance plans significantly reduces provider costs.” The reality is that “public plans do not bargain with providers, and bargaining power cannot affect provider costs. When providers use the political process to seek payments higher than those offered by public plans, they often succeed.” To the extent that Medicare pays providers less than private plans, it is because of the government’s regulatory power, not to any “bargaining.” More broadly, bargaining power does nothing to get at reducing the actual costs of care. Furthermore, the consistent success of physicians in lobbying Congress to raise payment levels above the formulas specified by law calls into questions the ability of any public plan to save money by reducing payments to providers.

The fourth claim is that “public insurance has pioneered new payment and quality-improvement methods that have frequently set the standard for private plans.” The reality is that “private-sector organizations have introduced new quality-improvement methods, new customer services, disease management, and coverage of preventive care.” Such innovations include the managed care HMO, a plan designed to coordinate care and reduce spending. The traditional Medicare fee-for-service plan does not include this innovation.

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Comments Author: Jeet Guram
  • DOOW
    Re: Public Plan: Bad Option

    “The first claim is that “Medicare has controlled cost growth better than private-sector health plans.” The reality is that “when payments from all sources are considered, spending on Medicare beneficiaries is increasing faster than spending on the privately insured.”

    Response:

    I don’t find this to be credible, the background research that supports his contention reflects his interpretation, but can be interpreted in other ways. The chart reference use is from Medicare reflecting cost savings, but there the corresponding data that supports his contention is misleading. The interpretation of the second chart reflecting beneficiaries’ secondary source of payment merely reflects a change of economic environment, that is, the availability of other insurance from social changes. A fee structure set up by Medicare is derived from a private firm where self-interest most likely doesn’t come into play; while recent review of such a fee structure from a private-sector reflects otherwise. There was a recent court ruling filed by the government that dealt with such an incident of a bias fee structure.


    “The second claim is that “Medicare’s administrative costs are lower than the private sector’s.”… But because Medicare beneficiaries are all elderly, disabled, or diagnosed with end-stage renal disease, they have high total health care costs. Even though administrative costs are high in Medicare, when they are divided by the very large total health care costs within Medicare, the resulting percentage is small.”

    Response:

    This assumption sounds believable, however, the article failed to mention Medicare takes all comers, and that you can’t get from any private-sector insurance plan. When you take this into consideration, the cost is within reason.


    “The third claim is that “bargaining power of public health insurance plans significantly reduces provider costs.” The reality is that “public plans do not bargain with providers, and bargaining power cannot affect provider costs. When providers use the political process to seek payments higher than those offered by public plans, they often succeed.” To the extent that Medicare pays providers less than private plans, it is because of the government’s regulatory power, not to any “bargaining.”


    Response:

    I concur with the author’s assertion the fee payment from plans such, as ‘Medicare’ is determined via a legislative process, but it has its base from private studies. Again, it should note that self-interest seldom plays a role, thus, the fee is ‘fairer.’ One should keep in mind as with any pricing structure, its overall satisfactory level is a determining factor and not toward any one group. In reverse terminology, it probably will not satisfy anyone. However, the primary focus is fairness for the involved parties.



    “The fourth claim is that “public insurance has pioneered new payment and quality-improvement methods that have frequently set the standard for private plans.” The reality is that “private-sector organizations have introduced new quality-improvement methods, new customer services, disease management, and coverage of preventive care.” Such innovations include the managed care HMO, a plan designed to coordinate care and reduce spending. The traditional Medicare fee-for-service plan does not include this innovation”


    Response:

    The author failed to acknowledge the government via ‘Medicare’s’ contribution in this area. Medicare contracts out to ‘Private HMO’s’ by setting up a monthly fee payment that is standard nation wide. Medicare dictates a standard coverage requirement that each private participant must meet that standard, and provide other services at their option. The competition set up as such as ‘mentioned’ by the author, resulted in innovation, and that in turn provides better customer service.
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