July 31, 2009
By Nina Owcharenko
It's a critical week in Congress on the health care reform
front, and members are ramping up the rhetoric for one of the
sticking points -- a government-run health insurance plan that
would "compete" with private insurers.
"I believe [a public health plan is] the only way we'll drive down
costs," Sen. Kirsten Gillibrand, D-N.Y., recently told the Buffalo
News. Like other Democratic members and the Obama administration,
Gillibrand insists a new public health plan modeled after Medicare,
which is facing insolvency and piling up trillions in long-term
debt, would bring in savings that private insurers can't achieve.
The House Tri-Committee and Senate Health, Education, Labor and
Pensions Committee bills both create a new public plan modeled on
Public plan proponents claim the addition of a new government plan
will drive lower costs and improve quality and innovation, using
the Medicare program as an example. According to public plan
But Dr. Robert Book, a health care economist at the
Heritage Foundation, recently combed through the Medicare data
and found that the facts tell a different story:
Total health care costs per patient are growing
faster for those on Medicare compared with those
who have private coverage. We don't see it immediately because
Medicare is paying a rapidly shrinking share of its beneficiaries'
total costs, with an increasing share coming from beneficiaries'
out-of-pocket payments and supplementary and other private
insurance. An apples-to-apples comparison of total health care
costs between Medicare and privately insured patients shows that
per-patient care is increasing at a faster rate for those on
Medicare's per patient administrative costs are
substantially higher than those for private
insurers. The illusion of the lower Medicare administrative costs
comes from expressing those costs as a percentage of total costs,
including patient care. But most of the program's administrative
costs are accounted for in activities that aren't directly related
to the level of patient care. And it's not a straight comparison in
any event, because Medicare doesn't offer the same services that
private insurers do, such as disease management and on-call nurse
consultation -- services that are included in the private insurers'
Medicare has no "bargaining
power."While Medicare can pay doctors and
hospitals less than private plans, it's only because the federal
government dictates or "fixes" the prices. There is no bargaining
involved, if that word has any meaning at all, and it hasn't really
reduced the actual cost of providing care. In fact, lobbyists for
doctors' groups have convinced Congress for the past seven years to
block scheduled reductions that Medicare pays for physician
services. In six of those years, Congress actually replaced the
reduction with a payment rate increase. The Medicare program itself
doesn't have much power in lowering prices: its prices are
politically driven and Washington's Beltway politics could raise
prices instead of lowering them.
Historically, public health plans have followed the
health care delivery innovations that come out of
the private sector. As private health organizations and insurers
introduce improved quality measures and customer service perks (not
to mention smarter ways to do disease management and preventive
care), Medicare follows suit.
Even if you disregard Book's arguments, there are other drawbacks
to Congress' creating and micromanaging another Medicare-like
program. One is the unfunded future promises Medicare (read:
taxpayers) is obligated to pay out -- more than $36 trillion right
Plus, a public health plan creates the conditions for a "Freddie
Doc" entity that would take the same bad steps we've seen from the
"public plan" mortgage companies Fannie Mae and Freddie Mac. These
quasi-government companies were created to "keep private lenders
honest." Instead they were driven by congressional meddling,
special-interest lobbying and bureaucratic processes that threw the
entire financial system into chaos.
We don't need that to happen even more in the nation's health
industry, which makes up one-sixth of our economy. That's not what
voters thought they were getting last November. Congress needs to
scrap the public option and focus on the health reform proposals
that enjoy broad bipartisan support -- like changing the unfair tax
treatment of employer-sponsored health insurance so that families
and consumers can buy affordable insurance and have real options in
Owcharenko is a senior policy analyst for health care at The
Heritage Foundation's Center for Health Policy Studies.
Originally appeared in Kaiser Health News
It's a critical week in Congress on the health care reform front, and members are ramping up the rhetoric for one of the sticking points -- a government-run health insurance plan that would "compete" with private insurers.
Director, Center for Health Policy Studies and Preston A. Wells, Jr. Fellow
Read More >>
Request an interview >>
Please complete the following form to request an interview with a Heritage expert.
Please note that all fields must be completed.
Heritage's daily Morning Bell e-mail keeps you updated on the ongoing policy battles in Washington and around the country.
The subscription is free and delivers you the latest conservative policy perspectives on the news each weekday--straight from Heritage experts.
The Morning Bell is your daily wake-up call offering a fresh, conservative analysis of the news.
More than 450,000 Americans rely on Heritage's Morning Bell to stay up to date on the policy battles that affect them.
Rush Limbaugh says "The Heritage Foundation's Morning Bell is just terrific!"
Rep. Peter Roskam (R-IL) says it's "a great way to start the day for any conservative who wants to get America back on track."
Sign up to start your free subscription today!
The Heritage Foundation is the nation’s most broadly supported public policy research institute,
with hundreds of thousands of individual, foundation and corporate donors. Heritage, founded in
February 1973, has a staff of 275 and an annual expense budget of $82.4 million.
Our mission is to formulate and promote conservative public policies based on the principles of free
enterprise, limited government, individual freedom, traditional American values, and a strong national
defense. Read More
© 2014, The Heritage Foundation Conservative policy research since 1973