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Does Medicare contain spending growth better than private insurance?

Posted Jul 27 2009 11:14pm

A paper by Boccuti and Moon (2003) believes it has. Annual per enrollee cost growth between 1970 and 2000 was 11.1% for private insurers, but only 9.7% for Medicare. Why is this?

While cost growth between for Medicare and private insurance very similar for hospital services, private health insurance has had much steeper cost growth for physician services. Does this mean that those with private health insurance get better care (e.g., shorter wait times for appointments, more physician selection) or worse (e.g., too many unnecessary services, uncoordinated care).

Methodological Points

The authors claim that three characteristics are essential to make this comparison accurate:

  1. Compare cost growth on a per enrollee basis. This is important but is only valid if populations are fairly stable over time. The Medicare population over time likely changes little (everyone over 65 gets Medcare), but with SCHIP and Medicaid expansions, those covered by private insurance in 2009 likely look a lot different from people with private health insurance in 1989.
  2. Calculate the cumulative impact of spending growth. By this, the authors mean that you shouldn’t overly rely one or two years of data. Short run fluctuations ofter even out over time.
  3. Compare similar services. Ideally, the authors would compare the cost of treating each disease for Medicare patients and those with private insurance. Instead the authors settle on hospital and physician services. These two broad categories give a good overview of total cost increases, but may be of limited value of identifying for which diseases is cost growth a problem.
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