As the health care debate heats up, President Obama and other Democrats have identified a new villian; insurance companies.
At a press conference on July 22nd, President Obama said:
“You know, there had been reports just over the last couple of days of insurance companies making record profits. Right now, at the time when everybody’s getting hammered, they’re making record profits and premiums are going up.”
At the end of July, Nancy Pelosi identifiedthe new villains with:
“They are the villains. They have been part of the problem in a major way. They are doing everything in their power to stop a public option from happening.”
These comments coupled with a House plan that looks a lot like an expansion of Medicaid and Medicare to all, would cause one to think that we should have some empirical evidence that shows that a government run option is more cost effective. One would think that with nearly 40 years of history, the fine government employees that provide oversight to Medicare and Medicaid, and would be dramatically expanded to support Obamacare, would have been able to squeeze every last penny of savings from the existing programs. If so, wouldn’t we expect to see particularly Medicaid’s cost or rate of growth, to be lower than private insurance?
Yes we would but, no we don’t.
A study done by the Pacific Research Institute shows that rather than becoming more efficient than private insurance, Medicaid spending per person has outpaced private medical spending by 35% since 1970. If that isn’t enough to question government efficiency, understand that this study understated total Medicaid costs and overstated private costs for the following reasons:
First, my analysis doesn’t adjust for cost-shifting from Medicaid to the Medicare prescription drug program. Medicaid used to cover many of the costs of drugs that have now been shifted to Medicare. As of 2005, just prior to the Medicare drug benefit’s full implementation, Medicaid’s per-patient costs had risen 53 percent (rather than 35 percent) more than per-patient NHE apart from Medicare and Medicaid.
Second, my analysis counts the Medicare prescription drug program’s expenditures as part of privately purchased care, rather than as a part of Medicare.9 Because my analysis compares Medicaid’s costs to NHE apart from Medicaid and Medicare, this benefits Medicaid.
Third, it removes everyone on Medicaid or Medicare from the pool of patients receiving privately purchased care, even though a significant share of Medicaid patients’ care is covered not by Medicaid but privately — and even though, as of 2000, 32 percent of Medicare patients’ overall care (including
their Medicare copayments and Medigap insurance) was paid for privately.10 My methodology counts health care purchased privately by Medicaid and Medicare beneficiaries among the costs of private care, without counting its recipients among the people receiving private care. If privately purchased health
care costs are divided by the whole U.S. population, rather than by the population not enrolled in Medicaid or Medicare, then Medicaid’s per-patient costs have increased 54 percent
more than per-patient NHE apart from Medicare and Medicaid.Fourth, it doesn’t adjust for any cost-shifting from Medicaid to the State Children’s Health Insurance Program (SCHIP). When SCHIP began in 1998, many Medicaid beneficiaries were shifted into that program. Over time, this has saved Medicaid billions without representing any actual improvement in cost containment. From 1970 to 1997, immediately prior to the start of SCHIP, Medicaid’s costs rose 81 percent more than NHE apart from Medicare and Medicaid.
President Obama and the Democrats claim that by implementing the government option they will be able to drive savings and reduce the overall cost of health care. The fact is that if Medicaid and Medicare had been held to a rate of growth equal that of private insurance, last year alone these programs would have cost $201 billion less, nearly a 25% reduction of what was actually spent.
Before government takes over private insurance, under the argument of cost savings and efficiency, we would be wise to suggest the old adage:
Physician, heal thyself!
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