Find evidence that insurers can – or can’t – rein in health care costs

Here’s a question that reporters on the aging beat should look into as the debate over Medicare rages on:

Where’s the evidence that private insurers would be more successful than Medicare in holding down health care costs for aging Americans?

Nobel prize-winning economist Paul Krugman – a professor at Princeton University and a self-professed liberal – argues that it doesn’t exist. Private insurers have a worse record of keeping health care costs in check than Medicare, not a better one, he wrote this summer in The New York Times.

Take a look at the chart in Krugman’s piece comparing real cost (that means inflation-adjusted) per beneficiary for Medicare and private insurance. As Krugman observes, the sharp increase in Medicare costs is concerning – but the rise in costs for people covered by private insurance is even more so.

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“We don’t have a Medicare problem, we have a health care cost problem,” Krugman says.

Critics of Krugman’s piece made several points in the comments section. Costs are shifted routinely from public programs such as Medicare and Medicaid to private insurers, inflating these insurers’ expenses, they note. Private insurers are better at combating fraud and abuse by medical providers than is the government, they claim. And the track record for Medicare Advantage plans – which are run by private insurers and now serve about 25 percent of Medicare beneficiaries – shows that they work well, they observe.

That last point comes with a big caveat, however: Medicare Advantage plans have been getting surplus payments, over and above what they would get under traditional Medicare, for each member and these payments average about $1,000 per member per year. Also, they’ve been found to serve a healthier, less-expensive population of older adults. So, comparing the performance of Medicare Advantage plans and traditional Medicare can be a bit like comparing apples and oranges.

(The Obama administration has proposed eliminating these surplus payments, worth an estimated $156 billion, over the course of the next decade. For a look at the surplus payment issue, see this issue brief from the Commonwealth Fund.)

But I digress – let’s get back to the original question: What evidence exists that private insurance companies will be better at controlling health care costs for older Americans than Medicare?

I wish I had the answer readily available. I don’t. But I’d love to see some enterprising health care reporters take this on.

If you’re interested, give yourself some time to delve deeply. Talk to some economists and ask “What measures would you use in to assess Medicare’s and private insurance companies’ experience in controlling costs? Why are these measures important? Where would I find data? Have you or someone else already done this kind of analysis – if so, can you point me to it? Have key studies have examined this issue? Are their findings definitive or not, and why or why not?”

Be sure to talk to economists on both sides of the political spectrum so you get a balanced perspective.

Then, look through articles archived at Health Affairs (AHCJ members have access) for research on this topic and related issues. (A few examples: What are administrative costs for Medicare versus private insurers? What’s the evidence from Medicare Part D prescription drug program, run by private insurers, and how is that relevant to the question of who can best control costs?) See who’s written on these issues and contact them.

Again, ask for data, not rhetoric. Make sure the data you’re looking at applies to the 65-and-older population. Otherwise, it won’t tell you what you want to know.

If you keep digging, you’ll eventually have an important story that can shed much-needed insight on a fundamental piece of the Medicare debate now underway. Think of how many older people would appreciate an objective, rigorous, thoughtful analysis of this kind.

UPDATE: Noam Levey of the Los Angeles Times touches on this question in an article analyzing why a premium support program for Medicare would be a big gamble.

Here’s a segment from that piece, which is behind the Times‘ pay wall:

“Critically, many premium support plans, including Ryan’s, limit how quickly the value of the voucher would increase over time. That means that if insurance premiums rise more quickly than the value of the voucher, seniors – and not the federal government – would have to pay more. That would ensure Medicare spending remains in check while shifting risk to individual seniors….”

“It remains unclear whether private insurance companies, which typically have higher administrative costs and pay more to hospitals and other providers, would do better than the current Medicare program at holding down costs.”

For another interesting look at this topic, see this piece in Bloomberg by Peter Orszag, former director of the Office of Management and Budget in the Obama administration.

Judith GrahamJudith Graham (@judith_graham), AHCJ’s topic leader on aging, is writing blog posts, editing tip sheets and articles and gathering resources to help our members cover the many issues around our aging society. If you have questions or suggestions for future resources on the topic, please send them to

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