Medicare vs. Private Plans

Robert Samuelson, whose prior commentary on healthcare reform issues is pretty atrocious, again takes on the subject. A brief response to a couple of his points:

The public plan's low costs would be artificial. Its main advantage would be the congressionally mandated requirement that hospitals and doctors be reimbursed at rates at or near Medicare's. These are as much as 30 percent lower than rates paid by private insurers, says the health-care consulting firm Lewin Group.

You know what I would love to see, and what people like Samuelson would probably hate to see? A full, public disclosure of private insurance company reimbursement rates. You see, Medicare reimbursement rates are public - anybody can access and review them. Health insurance companies keep their reimbursement rates under wraps. I'm really not convinced by the argument that "Medicare rates are 'as much as' 30% lower than our secret rates" - it's easy to cherry pick an outlier to make such an argument. Let's see the real numbers so we can determine for ourselves whether Medicare truly undercompensates the doctors... who voluntarily accept it... or if the insurance industry is again playing games with statistics or "making stuff up" to subvert the debate.

As for administrative expenses, any advantage for the public plan is exaggerated, say critics. Part of the gap between private insurers and Medicare is statistical illusion: Because Medicare recipients have higher average health expenses ($10,003 in 2007) than the under-65 population ($3,946), its administrative costs are a smaller share of total spending.

You see, administrative costs go up when plan members don't get sick and don't make claims. To enjoy cost savings in administration, you need to insure people who get sick a lot, go to lots of different doctors, hospitals, and other treatment facilities, and create an avalanche of claims for reimbursement each time. This is why private insurance companies were so eager to insure the elderly prior to Medicare, and why they complain so bitterly that the government excludes them from that market - or inadequately subsidizes their participation.

Likewise, Medicare has low marketing costs because it's a monopoly. But a non-monopoly public plan would have to sell itself and would incur higher marketing costs.

Medicare Advantage plans don't compete with Medicare? Private prescription plans for seniors don't compete with Medicare? Wow, when you ignore the facts and make stuff up, you can make all sorts of interesting arguments.

Even Hacker concedes that without reimbursement rates close to Medicare's, the public plan would founder. If it had to "negotiate rates directly with providers" -- do what private insurers do -- the public plan could have "a very hard time" making inroads, he writes. Hacker opposes such weakened versions of the public plan.

But wait a minute. Don't a lot of private insurance plans avoid the need for actual negotiation - or even a lot of the difficult, costly work in developing reimbursement rates - by tying the scope of their coverage and their reimbursement rates to Medicare rates? If Samuelson is deferring to Jacob Hacker as an authority on this subject, perhaps he should start by reading what Hacker has to say:

Over the last two decades, moreover, Medicare has increasingly emphasized improved payment methods and rigorous reviews of technology and treatment, and it has made increasing investments in quality monitoring and improvement. Revealingly, private plans generally use the public Medicare plan’s criteria for covering treatments as their standard of medical necessity, and they have adopted many of Medicare’s innovations in payment methods. As Robert Berenson and Bryan Dowd note in a recent Health Affairs article, “Traditional

As for "marketing expenses"....

In one study that assumed widespread eligibility, the Lewin Group estimated that 103 million people - half the number with private insurance - would switch to the public plan.

When half of people with private insurance say, "I don't know how much a public plan will cost or what it will cover, but it has to be better than this ****," why does Samuelson find it so troubling that the industry will face competition?