Making statistically valid generalizations about 1/6th of the US economy, health care, is difficult, at best, beyond saying we spend a lot. Even that generalization is suspect when viewed against what we get and what we can afford. When one disaggregates, focusing on specific elements, it’s even more difficult. There’s usually inadequate data, and erroneous or politically misleading conclusions drawn. But, as witness the House yesterday narrowly passing a 1300-page cap-and-trade energy bill, without even reading it, to regulate and tax almost the entire US economy, facts are easily left behind in favor of political power seeking and arm-twisting payoffs to individual legislators and their contributors.
So, let’s get real.
Tom Bevan, founder-editor of daily must-read RealClearPolitics, today writes “Busting the Administrative Cost Benefit Myth,” that a government-run plan would save spending by cutting administrative costs, based on a Heritage Foundation paper that “Medicare Administrative Costs Are Higher, Not Lower, Than for Private Insurance.” In short, because each Medicare claim is for a much higher amount than each private insurance claim, the percent of the dollar amount of total claims for mostly fixed administrative costs is lower in Medicare. If considered, instead, on administrative cost per number of claims processed, Medicare’s admin costs are higher than in private insurance.
The former head of Medicare and Medicaid and former US assistant secretary of health recently, similarly, took on this administrative cost myth in the Wall Street Journal, asking and answering “Is Government Health Insurance Cheap?”
But the comparison between public and private plans is a false comparison. Private insurance and public benefits are not the same business. For all its warts, private insurance tries to manage care. Medicare is mostly about paying the bills presented to it….
First, private insurers must build provider networks. These networks can include high-value providers and exclude low-quality providers. Except for certain circumstances, including criminal acts, Medicare is forbidden from excluding poor quality providers. It lets in everyone who signs up. So one question to ask is, will the public plan have Medicare's indifference to quality -- or invest in the cost of a network?
Second, private insurers must negotiate rates. Medicare just fixes prices using a statutory and regulatory scheme. And anyone who imagines a public plan would be less costly than private plans must keep the following issue front and center: In the many procedure categories where Medicare's statutory price does not cover full provider costs, shortfalls are shifted to private payers who end up subsidizing the public program. So, will a public plan negotiate rates or simply use fiat as a means of gaining subsidies from private insurance?
Third, private insurers must combat fraud -- or go out of business. Indeed, these payers have every incentive to invest in antifraud personnel and strategies down to the point where return and investment are equal. But anyone who thinks that a public plan could serve as a "yardstick" for the private sector needs to consider Medicare's dismal record with regard to fraud, waste and other abuse….
Fourth, private insurers must incur the administrative cost of marketing. Medicare, of course, does not need to market. A public plan competing with other alternatives would have to market itself to the public, and this means tax dollars used to advertise against private plans. Or the public plan could "compete" by using heavily subsidized marketing channels not available to private insurers, such as Social Security mailings, welfare offices, unemployment check stuffers, and the constellation of government-funded "advocacy organizations."
Seeking to debunk this authoritative column, the pro-government-run health care blog Think Progress actually proves the column’s point.
Medicare and Medicare Advantage treat the same population, yet according to the Congressional Budget Office the Medicare public plan spends less than 2 percent of expenditures on administrative costs, “compared with approximately 11 percent of spending by private plans under Medicare Advantage.”
Medicare Advantage plans screen networks of proven providers, attracted partly through better reimbursement, comprehensively cover medical costs, including prevention and access to nurse hotlines and such Vs the high deductibles and co-pays and lack of intensive preventive services in Medicare, actively combat frauds in billing and procedures, and must market Vs automatic enrollment in Medicare in order to collect Social Security, aided by other government agencies. If ObamaCare is to be as comprehensive, preventive and patient-supportive, fraud-resistant, and reach out to the uninsured as touted, its administrative costs will approximate Medicare Advantage’s.
Of note here is that Medicare Advantage’s 11% admin costs is near the average of private health plans’ 12% over the past 40-years. Some cost components have declined, due to automated claim-processing, increased fraud prevention, and reduced marketing commissions, while others have increased, particularly in preventive care measures. That’s called increased bang for the buck.
The journal of Annals of Internal Medicine lays the core fact on the examination table: “The Obama Administration's Options for Health Care Cost Control: Hope vs. Reality.”
In theory, these reforms—more research, more preventive screenings, and better organized patient data—sound like benign devices to moderate medical spending. For many purposes, such reforms are substantively very desirable. But these reforms are ineffective as cost-control measures. If the United States is to control health care costs, it will have to follow the lead of other industrialized nations and embrace price restraint, spending targets, and insurance regulation.
In other words, impose reimbursements to providers that are too low to cover costs of top-quality and access, ration, fail to encourage the best and brightest to practice medicine, reduce incentives for innovation, and stifle adaptivity to changing conditions and efficiency opportunities.
Will we, again, see the “don’t give me any damn facts” attitude prevail in Congress? Our health is at risk.
Tracked: Jun 29, 16:58