Medicare saves money. To many stakeholders, that’s precisely the problem

Paul Krugman notes in today’s Times that Medicare is cheaper than private insurance. He draws upon a nice column by Austin Frakt and Aaron Carroll, which in turn draws on an impressive line of research by McWilliams, Meara, and colleagues to document that delaying Medicare eligibility is bad for health, and may increase costs, too.

I endorse everything Krugman says. There is much evidence that Medicare has controlled costs better than private insurance–not well enough, but better than the alternative. I would note one omission, though. Krugman writes:

O.K., the obvious question: If Medicare is so much better than private insurance, why didn’t the Affordable Care Act simply extend Medicare to cover everyone? The answer, of course, was interest-group politics: realistically, given the insurance industry’s power, Medicare for all wasn’t going to pass, so advocates of universal coverage, myself included, were willing to settle for half a loaf.

In my view, this misses a large part of the story. If insurers were the only obstacle, we would probably have a public option or some sort of Medicare buy-in for people nearing retirement. Both of these ideas are politically appealing to a target demographic both parties care greatly about. Insurers have been hit with many new regulations and requirements. Insurers wanted a strong individual mandate. ACA enacted a relatively weak one, which itself faces political and legal challenges across the country. Insurers would probably like to see other provisions such as a strong Independent Payment Advisory Board (IPAB) to provide political cover for their own efforts to constrain marginal but costly treatments, drugs, and devices. These are a hard sell. The industry has influence, but it is hardly all-powerful. It does not, to say the least, poll very well.

What’s missing from Krugman’s analysis is the quiet supply-side voice of the medical economy: Everyone from pharmaceutical companies and medical equipment suppliers to community hospitals, physician groups, academic medical centers, and more. Each of these stakeholders understands that Medicare’s massive bargaining power is the key leverage point for cost-control efforts. Whatever their public complaints about our fragmented, inefficient network of private and public insurers, many supply-side stakeholders are deathly afraid that the alternative will be a powerful Medicare near-monopsony sitting across the table from them in determining what’s covered and at what price. Such fears provide very strong reason to support the status quo.

The logic of counterveiling power is central to European efforts at cost control. It was a huge, sometimes implicit, aspect of the debate over the public option. Sometimes progressive policy wonks proceeded as if we were the only ones really listening. We weren’t. As we look to control costs, we will need to focus more explicitly on constraining medical prices. Whether we do so by expanding public coverage or we do so through some other option, this will be a fight, maybe one no less bitter than last year’s health reform. The sooner we realize that the issue goes beyond insurers, the sooner we can have a realistic conversation about what really needs to be done.

Author: Harold Pollack

Harold Pollack is Helen Ross Professor of Social Service Administration at the University of Chicago. He has served on three expert committees of the National Academies of Science. His recent research appears in such journals as Addiction, Journal of the American Medical Association, and American Journal of Public Health. He writes regularly on HIV prevention, crime and drug policy, health reform, and disability policy for American Prospect, tnr.com, and other news outlets. His essay, "Lessons from an Emergency Room Nightmare" was selected for the collection The Best American Medical Writing, 2009. He recently participated, with zero critical acclaim, in the University of Chicago's annual Latke-Hamentaschen debate.

9 thoughts on “Medicare saves money. To many stakeholders, that’s precisely the problem”

  1. The whole “Health Care” debate is built, I believe, on a specious, synthetic premise. Obviously, we understand that health care, and health insurance, are not synonymous. So, the first issue we have to resolve is, are we debating the best method of health care distribution, or are we trying to hedge against poor health by purchasing insurance.

    If it’s the former then the provider’s interests are aligned with the consumers’ and payment would be on a “piece work” basis. They would be paid as all wholesalers are paid and their profits could be increased through inspired innovations and increased efficiencies.

    If it’s the latter their interests are diametrically opposed to those of the consumers, and their profits are dictated by the amount of health care they provide, or withhold/deny, the consumer.

    One form is a legitimate enterprise, the other is simply blackmail.

  2. you wrote: many supply-side stakeholders are deathly afraid that the alternative will be a powerful Medicare near-monopsony sitting across the table from them in determining what’s covered and at what price.

    IOW they are afraid they will make less money.
    It is not in their self-interest to support HCR.
    Pretty simple.

  3. The only good jobs in America involve scamming and bloodsucking. Take that away and what’s left?

  4. Not to wax Pollyanna here, but, you know, I don’t mind if my doctor is rich, if she gives me the right diagnosis and is reasonably approachable during the process. All this stuff creates jobs too. I’m not saying we should let them run the rest of us over in a car, but, how do we know this is the “real” problem? Just because they make more than Euro or Aussie doctors? Maybe they have more loans.

  5. NCG, they do have more loans. Despite government-subsidized medical schools. That’s part of the problem – we have a system where there are both massive government spending and massive private-sector rip-offs.

  6. NCG: we don’t have better outcomes. Maybe in a few areas. I’m not opposed to my doctor being well-off, but when a doctor in europe or working for the VA makes diagnoses that are just as good and is similarly accessible for a fraction of the price, I gotta wonder.

  7. NYShooter:

    “… are we debating the best method of health care distribution, or are we trying to hedge against poor health by purchasing insurance. … One form is a legitimate enterprise, the other is simply blackmail.”

    Indeed. In my Fantasy White House, TR Obama would have ‘busted’ the health insurance ‘trust’. Outlaw the blackmail by nationalizing private health insurers. Or a sort of eminent domain: medicare ‘buys’ the private health insurers and then rationalizes (to borrow a charming corporate euphemism) the workforce.

    But our private rent-extracting industries all back each other up politically, so we got ACA instead.

  8. “[Monopsony power] was a huge, sometimes implicit, aspect of the debate over the public option.”

    I’m sorry, Harold, but WTF???
    The whole reason I was so disgusted with both the healthcare “debate”, and the stupid pointless bill that came out of it was precisely the LACK of any acknowledgement of this issue. The final bill we got is an open-ended promise to pay the medical/insurance crowd whatever they want, with pathetic token attempts to reduce costs that are completely irrelevant to the realities of why the costs what they are. The final bill seems to assume that it’s just some sort of bad luck that US prices are so out of line with the rest of the world, and totally ignores the fact that reducing them will, indeed, gore the oxes of many people.

  9. Okay, but how much is the rest of the world piggybacking on the US’ investment in health education and research? Just wondering.

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