Good post.

Bad example in using televisions. I'm shocked at how cheap TVs are now. Granted, 50-inch plasma HD TVS cost, um, infinitely more than they did thirty years ago, but there appears to be a reason for that.

Don't worry, Ezra: I'm sure that Megan will be back at you with an anecdotal story that 'proves' she's right. Probably one that mentions fat poor people.

Ezra,

Indeed, if Medicare didn't have to basically keep pace with the payments of private insurers, it would be even cheaper.

Absolutely backwards. Many insurers negotiate terms as 115-125% of Medicare rates. Medicaid is the one that needs to keep up, Medicare has sufficient market share to be dictating prices, not reacting.

Following this further, if you speak with hospital or physician practice executives they'll tell you that Medicare frequently does not cover their cost of care. Costs end up being passed on to their private insured patients to make them whole. The implications from this should be obvious.

This is far from saying private insurers have done a better job in controlling costs-- we're all on much better ground in acknowledging both have done a pretty terrible job. With a notable exception in the mid-90's, when real controls were put in place by HMOs until there was public outcry against any real utilization controls.

Of course, its much easier to claim "long-term success in holding down spending" (its laughable to hear Urban Institute use the phrase, I'm still amazed think tanks of any stripe have any credibility when their methodology is so shoddy) or pronounce, a la Obama and Clinton at last week's debate that their plans "control costs." We wouldn't want to worry about issues like real controls being required to constrain costs... its so much easier to proclaim success!

Bad example in using televisions. I'm shocked at how cheap TVs are now. Granted, 50-inch plasma HD TVS cost, um, infinitely more than they did thirty years ago, but there appears to be a reason for that.

Well, there's probably a similar reason for increasing health care costs. Medicine has its own versions of the 50-inch plasma, after all; health care now isn't the same thing as health care in 1978.

True, Jason, both that's a fact relevant to both Medicare and private insurance. If the only reason for the rise in medical costs was the advent of new procedures, the two would be equal or Medicare's would be greater since it is run by that supposedly super-wasteful government.

Sorry WW, but you're dead wrong on this (as the Urban study says). Medicare has lower growth because, to an extent, they can dictate prices. But they couldn't create too much variance with the private market: They couldn't have doctors refuse to treat, they couldn't have too much cost-shifting up the latter. They have monopsony for seniors, but not of the market, and that simply keeps them from forcing prices too low. You can argue that's a good thing. But you can't argue it ain't the case.

Hi Ezra,

As previously noted the TV comparison was a poor choice.

In 1980 a 19" inch color television was $400.

In 1980 tuition at Ohio State for one quarter was about $350.

Your premise is correct nonetheless.

Without looking at the data, I would postulate that a very large proportion of the growth in medical costs come from new treatments that keep older people alive for many additional years. So Medicare would have had a lower growth rate in spite of the fact that it has had a larger burden in the determinants of changes in costs.

..thing is they dont control cost. They control their own reimbursement. The rest of the cost is then passed on to secondary insurance.

So as medicare goes further and further away from covering the total cost secondary insurance's costs rise. This chart could just as easily be showing a fixed reimbursement by medicare and rising secondary cost by private insurance.

Not that anyone is better at controlling cost.. just that who is paying that cost is shifting.

david b, do you know the rate at which Medicare supplemental insurance has grown?

wisewon, I don't see how you've made your point at all:

Absolutely backwards. Many insurers negotiate terms as 115-125% of Medicare rates. Medicaid is the one that needs to keep up, Medicare has sufficient market share to be dictating prices, not reacting.

Medicare rates are not set in a vaccuum. The mechanism by which the rates are forced to keep pace with private insurance is political pressure on congress. As we know, it continually creates exemptions to the current law that requires more severe cost controls for Medicare. Here is one, slightly out of date article, since I didn't want to spend more time searching for what we already know.

Following this further, if you speak with hospital or physician practice executives they'll tell you that Medicare frequently does not cover their cost of care. Costs end up being passed on to their private insured patients to make them whole. The implications from this should be obvious.

Here's where I think you're really missing the big picture. Why can't a hospital operate at Medicare rates alone? Because it is inefficient, with a bloated infrastructure and it pays too much for equipment, drugs and services. There is no good reason for the operating costs of a hospital in the US to be as high as they are, and lots of bad reasons for it. If tomorrow hospitals were paid 100% at Medicare rates, "miraculous" efficiencies and savings would appear within months. There would also be chaos in such a sudden change, of course, so I'm not recommending it.

And I didn't even mention the building boom currently underway in the hospital industry. Hospitals have incentives to become even more expensive, with marble foyers and all the bells and whistles that make people think they're getting top-notch care, but actually don't make a dime's worth of difference.

You can't take these costs as a given. Private insurers are an outlet valve for hospitals that prevents them from having to control their own costs as well as they could, and allows them to continue engaging in their medical arms race.

For the record, you don't need a public insurer to lower the boom. The government could also let private insurers do it by setting caps on rates.

We should try to get the USA citizens to muscle the politicians into a state run system. Into a system that covers everyone and spends the same amount of money that Government spends now (Medicare plus Medicaid spending). People would allowed to opt for private care or accept the care at public hospitals and heath clinics.

Ezra,

I'm not wrong, you are-- so let's try this again.

First, let's look at what's been said and then I'll add a few other points.

Your original comment was

Indeed, if Medicare didn't have to basically keep pace with the payments of private insurers, it would be even cheaper.

You clearly implied that Medicare prices react to private insurers rather than Medicare dictating prices to the market.

You then backtrack in your response to me

Medicare has lower growth because, to an extent, they can dictate prices.

You then claim I'm "dead wrong" by saying the Urban Institute says

But they couldn't create too much variance with the private market: They couldn't have doctors refuse to treat, they couldn't have too much cost-shifting up the latter.

(As a brief aside, after reading your response, I could see how your original post was meant to say something softer than it did, i.e. that while Medicare dictates prices, it can only do so up to a point. But that isn't what you said, so that's not what I responded to. You don't get points for having the right thing in your head but writing it incorrectly.)

This is consistent with one of their concluding points. But its a point based on no data provided in the article. But even beyond that, the point doesn't refute at all what I argued.

So onto the substance: The difference in growth rates between Medicare and private insurers, as you've graphed above is slight-- 1.5 percentage points. This is precisely within the "variance" that would permit hospitals and physicians to continue seeing Medicare patients. The 4% variance in hospital payments between Medicare and private insurers and the persistent gap between the two with respect to physician services proves my point. This gap is tolerated by hospitals and physicians, they aren't dropping Medicare patients because its too small a difference to give up ~50% of your patients, and this difference is largely responsible for the overall difference of the original post.

Hence, as I wrote initially-- the difference here is because Medicare can dictate prices, and even when Medicare's rates are too low by a few percent, private insurers can pick up the difference. That doesn't show Medicare is doing a better job controlling costs.

Successfully controlling costs is about controlling utilization, not squeezing 5-10% more out of hospitals and physicians. I have no doubt that Medicare can squeeze the 5-10% more effectively. The question is whether it has the ability to control and restrict utilization more effectively. This article provided no evidence on this question.

jd,

Two comments, one small, one big:

The mechanism by which the rates are forced to keep pace with private insurance is political pressure on congress.

This comment only makes sense if you're arguing private insurers would be lobbying for higher prices. Ezra's point was that Medicare is limited to how low they can set prices because they have to be competitive with private insurers. My point was that they are the standard-bearers for setting low prices, and where they do, private insurers follow. There ain't gonna be political pressure by private insurers to raise reimbursement levels.

On the more important point: you're preaching to the choir on hospital operational inefficiencies and the like. I've very likely lived this one more than most here on this blog.

But on this line-- you've overstated:
If tomorrow hospitals were paid 100% at Medicare rates, "miraculous" efficiencies and savings would appear within months.

This was exactly the thinking with BBA a few years back. And the reality was the Medicare cuts were too steep, too quick. So Congress had to give back some of the funds in later legislation over a few years.

jd,

I misunderstood your political pressure point, so ignore that point above.

Suffice to say, Medicare doesn't keep up with private insurers on physician payments, and the data in the article Ezra cited backs that up. The is surely pressure by the AMA every year to increase payments, but that isn't about keeping up with private insurers. As I wrote at the top, with many insurers offering a reimbursement based on a fixed percentage of Medicare's rates, a successful lobbying in Medicare rates improves the whole pie for physicians, it doesn't typically reduce the gap between Medicare and private insurers. Again, the data in the article is extremely clear on this point. The gap is very stable over time. Precisely because of the fixed percentage reimbursement techniques used by Medicare.

Last two words should say: by private insurers.

McMegan doesn't know what she's talking about? Who'da thunk?

Well, as usual, wisewon has said pretty much everything I wanted to say, clearly and with more backup. And then david b makes the next logical point - Medicare's cost contrrols (ie reimbursement rates) amount to cost shifting, as private insurers or the patient have to sop up variances, which there usually are (ask your mom - or at least, ask mine, about what Medicare will pay for, and what isn't covered). I agree, Ezra, your point is backwards - Medicare sets a price that the private industry then rises, slightly, above. More Medicare (or Medicare for all) would probably incrfease pressure to raise reimbursement rates, because docs and hospitals insist they can't survive at those rates.

Medicare is cheaper than private insurance per enrollee?! That is remarkable as Medicare takes care of people when they need care the most: over 65 years old. That is quite a record.

Question we amateurs are batting around over on Angry Bear -- now complicated by this amazing stat:
GDP $14 trillion; all medical spending 15% of GDP = $2 trillion.
140 million workers.
$2 trillion divided by 140 million = $15,000 per worker paid toward all medical spending -- on the average.

We thought Medicare and Medicade taking up the old and the disabled might explain why family insurance is "only" $10,000 per family (while costing $15,000 per worker). But, now we see Medicare pays out less per enrollee than private coverage.

Who the hell is paying in the $15,000 per worker? ??? (I keep looking for a disappearing digit, but I can't come up with one.)

If medicare didn't at least try to keep up with private insurer, nobody would take their plan. And they continue to get worse, I had to call in a favor to get a family doc to take my grandmother as a patient because every practice is either closed to new medicare patients or doesn't take medicare.
The more likely scenario weboy in Medicare for all is an absolute boom of boutique practices, that and yearly widespread physician and hospital slowdowns until demands are met.

Denis Drew: not so fast.

Medicare pays far more per enrollee than private insurance for those under 65. Very roughly, it's twice as much per person. The point of the urban institute study was to compare expenses for similar or identical procedures, hospital stays, etc. It's a rate comparison, not a total cost comparison.

As you point out, old folks have higher costs. Medicare doesn't get rid of that fact.

jenga,

Do you mean like the boutique practices that sprout up in Europe where pay rates are often half as high as in the US?

And you also are presumably referring to the well-known physician slow downs across the rest of the UHC world. The only recent example of that I can think of is in Germany, where rates were frozen for many years and didn't keep pace with general inflation. And the solution wasn't to raise rates to the US level; not even close.

But if doctors want to have the public turn immediately against them, a work slowdown would be a great way to do it. People get mad at unions going on strike. Imagine professions in which the average income is $150,000 to $300,000 going on strike.

I think you've lost track of the fact that the cost of Medicine is now over $7,000 per person and still rising faster than income growth by a large margin. Boutique medicine isn't accessible to 80+% of the population in that environment, especially when you consider that people are holding the bag for their risk. Minute Clinics and similar attempts to squeeze efficiencies will be more significant.

“But you can't argue it ain't the case.”

That’s the great thing about wonks and politicians, who cares what the actual Doctors say about Medicare Reimbursement rates, or the insurers who have the cost shifted to them, or the PPOs and those that set the rates. If some academic sitting in some ivory tower reading reports second hand says it is so then it must be.

Not only will I argue the point but call you out as being completely clueless and full of $%^@. Medicare has, is and will reimburse providers below their cost of delivering service. Doctors do refuse to treat, there are associations of providers to assist others in dropping Medicare. If you actually knew the first thing about our healthcare system you would also know it is not easy to withdraw oneself from the grasp of Medicare. If you treat a patient who has Medicare and don’t know it you can get yourself into legal trouble. Every two years you need to tell Medicare you don’t want to work with them.

From an economical standpoint your argument also falls apart. In many areas Medicare is the largest insurer, think any place with a large retirement population. It’s not easy for a provider to pack up and move across country. It takes years to build a practice. A provider has fixed cost, office space, insurance and most other expenditure are fixed no matter the number of patients seen. It becomes a question of their time, if they have to work an extra day or squeeze in an extra 10 patients a day to cover base cost then that is what they have to do. A provider can’t walk away from 30% of their income, so they continue to lose money on treating Medicare patients and make it up by charging private insurers more and treating more patients.

To further shoot holes in your clueless argument have you ever heard of COBRA or HIPAA? They don’t apply to Medicare but surely drove up the cost of private insurance. Medicare has lower growth because politicians aren’t sandbagging it every other year. Throw in the NY Purchasing pool that increased the cost for every plan across the country because NY congressman are spineless twits. States have been increasing premium tax again something Medicare doesn’t pay. Sarb-Ox didn’t cost Medicafre a penny to comply how about private insurers? Medicare by law forced providers to submit claims electronically something private insurers can’t do.

This is the sort of thing you hear all the time. Government is so wasteful. It can't control its spending.

but gov. is not the provider here!

Medicare by law forced providers to submit claims electronically something private insurers can’t do.

Ridiculous.

Of course private insurers could require that claims be submitted electronically. Haven't you heard of freedom of contract?

Without reading the actual study, the biggest issue that jumps out at me is that you are comparing apples and oranges. To wit, prior to 2000, medicare did not cover prescriptions, private insurers by and large did. Isn't that going to have a pretty massive impact on cost growth since these life-style drugs are a big part of medical inflation over that last 20 years?

Hey, we could all save some money by having the federal government also take over the schools....and then, of course, there is much waste in all of the duplication of banking, so we could save money by federalizing the banking system as well.

Then we could plan the economy from a central unit of the federal government and save all that waste as well.....

Oh, that's right, it's been tried....

"Megan doesn't know what she's talking about? Who'da thunk?"

The combination of an English undergrad with an MBA is a really dangerous one, isn't it? She writes drivel, but *really well*.

rea,

Haven't you heard of freedom of contract?

Yes but insurers don't have contracts with every provider. They also can't legally decline to accept a claim from a provider they don't have a contract with. If you really wanted to learn the matter you would find out an insurer or claims processor in most states is legally obligated to accept and respond to any claim submitted by anyone on any media. If a provider chiseled a claim into a boulder and dropped it off at my office legally I would need to adjudicate that claim and respond. If your scratching your head saying that sounds ridiculous it's called government regulation. Depending on the state I have roughly 30 days to respond to a providers claim, no matter the format it is submitted or how much information it lacks.

What's ridiculous is people running their mouth about our current system when they don't know the first thing about it. People that place blame on the private system and extol the benefits of government run systems when the very things they complain about are government required.

I have finally gotten to the point where I think we need a single payer UHC system. We can call it America’s Progressive Health, every half wit, doesn’t know the first thing about HC, wish the Gov would take over it all Progressive in America will be mandated to join. About time the idiots get what they are asking for.

Now everything I read in my health insurer's marketing says they are the best because they enroll so many people they can negotiate the best rates. Are they lying to me or not?

If not, then why am I being screwed? If I want my health insurance to cost less, why am I choosing between a bunch of companies who enroll a few million people? My best options is to vote in someone who is going to agree with the health insurer's literature and put all Americans in to one giant pool and negotiate lower prices with the force of 300 million people. All I hear are Econ 101 arguments about how taxes are too high and that the invisible hand of the market must be allowed to do its bidding, but when faced with this seemingly obvious set of circumstances that would improve my economic outlook I am told I am idiot because providers are already cutting out Medicare patients because they don't get paid as from them as from privately insured patients.

I guess I am dumb according to Nate. Hey Nate, why don't you come work for my crappy salary and pay my ridiculous health insurance costs? You have so much sympathy for the hypothetical provider who has to forgo 30% of his income by dealing with Medicare patients. How about those of us (probably the majority of Americans with private health insurance) who have seen our rates go up 20% a year, while our salaries remain flat? Why don't you come switch places with me? You might not be as ignorant as I am, but you'll sure as hell be a lot poorer!

Ricky,

You asked a fair question and didn’t misrepresent reality so I’ll assume you’re not an idiot and try to answer you. The problem is government and regulation. The course you are taking to solve your issues only exasperates them. Health Insurance had its highest satisfaction and lowest cost when many small insurers competed for business. When the majority of employers over 500 lives self funded their benefit plans they where the most efficient, over 90% of premium went to paying claims. A couple large insurers do not benefit consumers, it only benefits congress and shareholders. Carriers can only make 6% profit roughly, any more then that it draws new competition. The problem is their margin is 6% of premium, so they have a vested interest in driving premiums as high as possible. Under large fully insured plans roughly 85% of premium goes to claims. This means your paying $1.18 for each dollar of care you receive. The foolishness of our current system and legislation is borne out in preventative and Rx coverage for example. If you know you need to get an annual check once a year why would you pay an Insurance company $1.18 for something you can buy direct for $1.00 or less? Government and Large insurers have tricked consumers into thinking any plan without a co-pay and low deductible is a bad plan. Only a complete sucker would purchase such a plan, you can keep the premium savings and pay for the every day care and still have money left over.

Take COBRA for example, it’s intentions are good but Congress made it considerably more expensive then it should be. It’s not the cost of caring people for 18-36 months that kills employers, it hurts but you can account for this risk, it’s the administrative burden. Only 2% of people offered COBRA elect it. But every person that terminates must be mailed the information. If an employer mails it to the wrong address they can incur tens of thousands in fines and the added liability of that person coming on the plan 2, 3, or more years later if they get sick. A small clerical error can literally bankrupt a company. That also means 98% of the cost to comply with COBRA is wasted. They could instantly save 98% on compliance cost if they just said anyone that wants to elect COBRA must take the initiative and contact their employer. HIPAA is the same, and the NY Health Pool is by far the most egregious waste of money.

Health Insurers should not be negotiating any rates. What care you elect to have and what you pay for it should be between you and your doctor. You should have a separate agreement with an insurance company that agrees to reimburse you so much per procedure or condition. By detaching you from the financial ramifications of your care decisions you are desensitized from the cost and thus spend excessively. A third party can’t control your spending after the fact, you should know for an office visit your insurer will give you $50. It should then be your responsibility to find a doctor that will accept $50 as payment in full or if they charge more justify that added expense.

I do find some of your comments depressing though, can you name one instance where a monopoly has ever been cost effective? Why anyone would think a single insurer would be more cost effective then 50 insurers competing against each other is beyond me, how many examples of over priced regulated markets do you need to see before you realize you’re being played as a sucker?

I can assure you one thing, if you continue to look for politicians to solve your healthcare complaints your cost will continue to increase 20% a year. If the last 34 years of increasing regulation hasn’t clued you into where the problem is coming from frankly you deserve the consequences.

Nate,
You aren't selling me on this completely. A monopoly isn't a monopoly isn't a monopoly. A government monopoly isn't always bad, isn't always good, but at least I can vote on it.

My concern is why is my health considered a commodity? Why do I have to broker between my doctor and insurance company if I am sick or even worse my child is sick? Why should someone who is born healthy be spared all the costs of insurance if they so desire and profit from it while the sick not only have to spend money to keep healthy they have to negotiate a system where both sides are trying to make a buck off the transaction?

I am on this board because I see through the right-wing BS regarding universal health care in other countries. Their systems aren't perfect, but they are a lot better than ours. I would rather us go in that direction that to try and patch a system or return to an earlier system where I am always in the position of getting ripped off.

JD
The dollar amount is irrelevant. I really don't care if people get mad. You need me not vice versa. If you want someone else to take my place, fine. I can be replaced in about 10 years and to the tune of 200 grand. Remember 1/3 of physicians are over 55 and contrary to Pete Stark's thoughts I would be more than happy to do something else. Don't push me. I have 2 other businesses and I can do alot more than medicine. Bottomline is you have to keep providers onboard with anything, especially when you add 45 million onto an already widespread provider shortage. I would think you actually want people to go into medicine or maybe you don't. If it's the altruistic ones that you want to completely fill the ranks you can usually find them heading home the minute the clock strikes 5, quoting to the minute the 80 hour work week or struggling to pass their boards. But by God they want Medicare for All. Bring it, there's nothing better than a good meltdown.

Ricky,

Your asking the right questions, I'll give you credit for that. You might not like where the answers lead you but it's the truth.

"My concern is why is my health considered a commodity?"

Because you treat it as such. By this I mean you rely on Insurance Companies and Politicians to make your decisions and facilitate your care. The simple truth is to an insurance company you are a number that represents X revenue and Y profit, that is their major concern. To politicians you are a vote. Come election time they will tell you they care and want to solve your problems but only if they need your vote. Neither of these parties cares about Ricky or his family. If they can help you while getting what they are after then so be it, but as soon as your needs diverge from their goals your on your own. If you trade your premium and your vote for their services you have commoditized your health care.

Allow me to present an example of each;

Politicians will never decrease regulation unless voters demand it, an electorate that doesn’t realize the problem is over regulation will obviously never make this demand and that is why the problem gets worse not better. Public demands for political intervention has exasperated our healthcare problems for decades.

Insurance is the transfer of risk, generally from a liability either uncertain in time or amount. If this transfer doesn’t take place your not selling/buying insurance. An example would be companies getting in trouble with the IRS and SEC for buying phony insurance policies to smooth over earnings. In most cases it would be illegal to purchase an insurance policy that doesn’t insure anything. First dollar health insurance coverage does nothing but increase carrier premium and thus profits. You the consumer are paying 15-20% more for no protection. Yet consumers demand this “insurance”.

In every other aspect of your life you are expected to make your decisions for yourself and your family. Federal government doesn’t apply for you job and negotiate your salary. Government doesn’t purchase your house or sign your rental agreement. No government official is there when you purchase a car, TV, Fridge or anything else. Your insurance company should never have any contact with your doctor. The care or treatment you receive should only between you and your doctor, it is no one else’s business. Similarly you doctor should have no legal right to expect payment from your insurance carrier. The insurance you purchase and it’s payout should be between you and the insurance company. If you try to pass off the responsibility for these decisions to others what would you expect to happen? Providers are going to try and bill as much as possible and insurers pay as little as possible. Imagine if you hired someone to go buy you a car, do you think you would be happy with the car or the price they bring back? Same with a home or anything else. People need to take responsibility for their own lives, if you don’t your always going to be disappointed with the results.

Your comment about right wing BS tells me you already have your mind made up and are looking for validation not answers. No one can stop you form making poor decisions, i.e. progressive UHC, but the rest of us shouldn’t be forced to suffer them and pay the consequences. You notice you never see any progressive response to legitimate arguments, that should tell you something about their goals. You have been duped into thinking UHC is about providing you better care when it fact it’s about controlling the money and advancing socialist agendas.

I’ll part with a question, you and most other progressives on this board seem to despise HMOs and their denial of care. Google HMO Act 1973, Congress, Kennedy in particular, and politicians in general forced them on us. It has always been their intention to force everyone into HMOs so the HMO will ration care and they won’t be blamed. The system you hate was designed by the politicians that you are now asking to fix it. For 34 years they have clearly laid out their plan to;
1. force everyone into Federally regulated HMOs, versus state regulated insurance companies,
2. Control the payment to those HMOs
3. Force the HMOs to ration care by reducing their reimbursement from item 2
4. allow the HMOs to take the blame and heat for the rationing while insulating themselves.

And sure enough you progressives are marching right into it. And all the way chanting anti right wing slogans blaming the problems on conservatives.

Good luck to you Ricky, your prejudices are about to get you and your children a lifetime of overpriced second rate care.