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Argument: Medicare out-performs private insurance, is a model for public insurance

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Supporting quotations

Jacob Hacker. "The case for public plan". The Institute for America's Future: "COST-CONTROL ADVANTAGES OF PUBLIC INSURANCE It is often assumed that private health plans are much more efficient than public health insurance. Yet a range of studies demonstrate that public insurance is able to provide a given level of benefits for less than they would cost through private insurance. Lower administrative costs and the ability to bargain for lower service and drug prices chiefly explain this advantage, as does the obvious lack of a profit margin in public programs. These features of public insurance not only allow it to offer the same coverage for less than private plans. They also, the evidence suggests, allow it to better restrain the increase in costs over time while preserving inclusive coverage. The remainder of this section focuses on the relative performance of Medicare and private health insurance in controlling costs. The Medicare program is under financial strain and has evident flaws that require correction, but it has performed far better relative to private health insurance than conventional wisdom suggests. And, as the next section of this brief discusses, a new public plan modeled on Medicare could do even better."

[...] Long-Term Cost Control: The evidence strongly indicates that a public plan can provide coverage less expensively than private insurance without impairing access or quality. Yet the greatest potential cost-control advantage of a public plan is its ability to restrain the rate of increase of costs over time—the key to maintaining good coverage without excessively burdening public and private budgets.

Although you would not know it from the debate over Medicare’s finances, Medicare has become increasingly effective at restraining the “excess growth” of spending—that is, per capita cost growth in excess of overall economic growth (accounting for population aging).45 Excess cost growth is a critical measure of the sustainability of any health plan, because it shows how quickly spending will rise as a share of personal and business budgets over time. A recent study that examined excess growth in spending on Medicare services between 1975 and 2005 found that the annual rate of excess growth fell from 5.6 percent during 1975-1983, to 2.1 percent during 1983-1997, to 0.5 percent during 1997-2005.46 Put another way, since Medicare payment controls were put in place in the early 1980s, Medicare spending has grown much more slowly than in the past—and in the most recent period (1997 to 2005), it grew only slightly faster than the economy overall, adjusting for population aging.

It is not possible using these data to compare Medicare excess growth directly with private insurance excess growth. However, a rough comparison is provided by contrasting excess spending growth among the nonelderly, most of whom are covered by private insurance, with excess cost growth among the elderly, 97 percent of whom are covered by Medicare. As Figure 1 shows, excess cost growth for the nonelderly was 3.4 percent between 1996 and 2004. That is, spending grew 3.4 percentage points faster than the economy. The comparable figure for the elderly—again, virtually all of whom are covered by Medicare—was 0.3 percent.47

A more direct comparison is provided by examining Medicare and private insurance spending for comparable benefits in recent decades.48 As Figure 2 shows, private plans’ spending per enrollee has grown substantially faster than Medicare spending per enrollee, especially in the last decade or so. Private insurance outlays per enrollee grew an average of 7.6 percent a year between 1983 and 2006, compared with 5.9 percent growth in per enrollee spending under Medicare—a 22 percent difference. (1983 was the year in which Medicare’s prospective payment system for hospitals was implemented; 2006 is the last currently available data year.) The gap is even bigger in recent years. Between 1997 (when the Balanced Budget Act of 1997 further constrained Medicare spending) and 2006, private health insurance spending per enrollee grew at an annual rate of 7.3 percent, compared with an annual growth rate of 4.6 percent under Medicare—a full 37 percent difference. As these comparisons indicate, not only has Medicare more successfully restrained the rate of increase of per enrollee spending, the rate of growth is also on a steeper downward trajectory under Medicare than under private insurance.

The Federal Employees Health Benefits Program has frequently been invoked as a model for national reform, and indeed it provides one template for a national insurance exchange offering competing private plans. It is not, however, a model of cost restraint when compared with Medicare. As Figure 3 shows, FEHBP’s annual growth rate of per enrollee spending averaged 7.3 percent from 1985 to 2002 (the most recent currently available data year) compared with 5.8 percent for Medicare.49 Indeed, the growth rate for FEHBP is virtually identical to that for private health insurance over this period (private health insurance grew 0.1 percent faster on an annual basis between 1985 and 2002.) This suggests that simply replicating FEHBP on a broader scale—without public plan choice—would be unlikely to provide the long-term cost restraint essential for successful reform.

A similar story is told by foreign experience. Other rich nations all rely on public or quasi-public insurance more than the United States does. (They do not, however, all rely on a single public insurer, and many have public and private insurance operating side by side.) And taken as a whole these nations not only spend much less on health care as a share of their economy than we do; they have seen their health costs slow dramatically in recent decades, while U.S. costs have continued to grow much faster than the economy.

Looking at the longstanding members of the Organization for Economic Cooperation and Development, the average excess rate of per capita spending growth between 1985 and 2002 was around one half of 1 percent for nations other than the United States—more or less the recent Medicare experience. Over the same period, per capita medical spending in the United States grew more than 2 percentage points faster than the economy.50 If U.S. spending had grown at the rate of spending growth in the rest of the OECD, health care would have consumed 11 percent of our economy in 2002, as opposed to 14.6 percent—a dollar difference of $436 billion greater than what the federal government spent on Medicare and Medicaid that year.5"


Tom Daschle. "A public plan will reduce costs and improve access". Newsweek. May 2, 2009 "This is usually a safe bet; we have never won the World Series of health care. The last time we even won a big game was in 1997, with the passage of the Children's Health Insurance Plan. Before that, you have to go back to 1965, when we won Medicare and Medicaid.

Those were hard-fought victories, and the opposition then is familiar now. Our current debate has focused on whether reform should offer the choice of a public health-insurance plan. Many of the same arguments against a government-sponsored plan were used at that time, too—chiefly, that a public program will lead to a single-payer health-care system. The claim was nonsense, and nothing more than a shortsighted tactic. Fortunately, Congress didn't fall for it. Medicare is arguably one of the most popular government programs on the books today."

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