Efficiency of Medicare vs Private Insurance

[thaiboxerken]

Medicare Has Controlled Costs Better Than Private Insurance
Medicare Has Lower Administrative Costs Than Private Plans.
So-called “competition” in the private health care market has driven costs up.
Medicare Is Publicly Accountable, Private Plans Are Not

http://healthaffairs.org/blog/2011/09/20/medicare-is-more-efficient-than-private-insurance/

 

[Biscuit]

I am certain someone will bring up the idea of letting insurance companies sell across state lines to lower prices so lets just bag that right away. Lower prices are a possible outcome, less consumer protection is a guarantee.

If we would drop the nonsense about not allowing medicare to negotiate for drugs it would be an even better program.

 

[Kestrel]

If we would drop the nonsense about not allowing medicare to negotiate for drugs it would be an even better program.

If believe the PPACA fixed that problem. Medicare is now allowed to negotiate drug prices.

 

[Neally]

Not according to the original article that the link in the OP was responding to:

http://healthaffairs.org/blog/2011/08/09/is-medicare-more-efficient-than-private-insurance/

 

[Ziggurat]

Looks to me like the fallacy of the marginal consumer.

Services such as Priceline work because the cost difference to an airline between taking off with a plane with one empty seat and taking off with a full plane is small. That is the plane's marginal cost: the cost of one extra passenger. If you are that marginal consumer, you can get very low prices. But it won't work for everyone, and typically not even for most people. The airline would lose money hand over fist if everyone paid the marginal consumer costs. So only a fraction of consumers can ever be marginal consumers, and if you try to force marginal prices on the system, you'll do one of two things: drive the supplier out of business, or drive up "marginal" costs so that they aren't really marginal anymore.

Medicare and Medicaid are in a somewhat similar boat. The purchasing power of the government allows them to demand and get marginal pricing in many cases. But that's built on non-marginal consumers. Try to make everyone marginal, and you'll fail. The details of the failure may vary, but its existence won't.

 

[thaiboxerken]

Not according to the original article that the link in the OP was responding to:

http://healthaffairs.org/blog/2011/08/09/is-medicare-more-efficient-than-private-insurance/

Of course. The article I linked to debunked the claim of the original article.

 

[Neally]

Of course. The article I linked to debunked the claim of the original article.

Maybe, maybe not. It presented the other side. Who's to say which one is right and which is wrong? Both made their arguments and presented their evidence. If you want to claim your link is correct, you'll have do do more than just assert that they debunked it.

 

[WildCat]

I am certain someone will bring up the idea of letting insurance companies sell across state lines to lower prices so lets just bag that right away. Lower prices are a possible outcome, less consumer protection is a guarantee.

I suppose you have evidence for that claim?

 

[PhantomWolf]

If we would drop the nonsense about not allowing medicare to negotiate for drugs it would be an even better program.

I can't believe that this ever got put in place in the first instance. Here we have a government department set up to specifically negotiate better pricing for drugs with the companies, it's called Pharmac.

 

[Kestrel]

I suppose you have evidence for that claim?

We can count on the same kind of venue shopping that happened in the credit card market. Insurance companies will move operations to whatever state enacts regulations that most favor the company over consumers. You will not even have the right to vote against the legislators that enacted the rules that favor insurance companies.

 

[JoeTheJuggler]

I don't know if this point really pertains to the thread topic directly, but it's at least related.

Prior to the ACA, it was really really difficult to compare insurance plans. You'd have to sort through a mountain of minutia and then make some difficult calls before you could compare premiums.

The ACA specifies a minimum essential coverage. Just as with state auto liability requirements, this will make direct comparison of the same product possible.

Closer to topic: for those of us without coverage prior to the ACA, the health care industry really doesn't resemble a free market. If you require a surgery, for instance, they won't give you an estimate. You can't meaningfully comparison shop. You have to have it done, so you're entirely at their mercy unlike a free agent with any meaningful decision making power in a free market.

 

[Biscuit]

I suppose you have evidence for that claim?

As insurance companies are not allowed to sell across state lines thats a pretty silly question.

However, if my insurance company screws me over here in AZ I can seek remedy through my states laws, my attorney generals office, my BBB, my legislatures, and other venues. If my insurance is based in another state with different regulations and accountability I am unlikely to persuade anyone in that state to take up my cause. I can not appeal my situation to anyone but the company itself that alone would result in worse customer service.

ETA: My guarantee was more of a "mark my words" rather than "its happened and I can prove it."

 

[PhantomWolf]

Looks to me like the fallacy of the marginal consumer.

Services such as Priceline work because the cost difference to an airline between taking off with a plane with one empty seat and taking off with a full plane is small. That is the plane's marginal cost: the cost of one extra passenger. If you are that marginal consumer, you can get very low prices. But it won't work for everyone, and typically not even for most people. The airline would lose money hand over fist if everyone paid the marginal consumer costs. So only a fraction of consumers can ever be marginal consumers, and if you try to force marginal prices on the system, you'll do one of two things: drive the supplier out of business, or drive up "marginal" costs so that they aren't really marginal anymore.

Medicare and Medicaid are in a somewhat similar boat. The purchasing power of the government allows them to demand and get marginal pricing in many cases. But that's built on non-marginal consumers. Try to make everyone marginal, and you'll fail. The details of the failure may vary, but its existence won't.

However what you could do is deetermine a national standard cost for each service that a service provides, something which currently seems not to exist and which health providers make up as they go along.

Once you have that, funding is easy. You can work out the normal number of services provided for the area based on the population dynamics in the area served, and then prebuy the services that will be required. If there is an under-estimate of the services, then the healthcare provider can show this and further services can be prebought to solve the issue as required, whereas if there is more paid for than used, those services roll over into the following year's estimations.

If at the same time these services are for everyone, then you get to cut out all the expenses of having to detect and deal with fraud and the like by the users, and only need to concentrate on fraud by the Providers instead.

Works out cheaper for everyone concerned. Providers get their funding up front, Tax Payers get to pay less, and everyone gets a high level of health care instead of just a select group.

 

[Ziggurat]

However what you could do is deetermine a national standard cost for each service that a service provides, something which currently seems not to exist and which health providers make up as they go along.

But how do you do that without a free market? It's not as simple a question as you might think.

Once you have that, funding is easy.

Funding is simple. But it can also be paralyzing. Bureaucratically determined pricing isn't responsive to changing conditions, and that rigidity means you're likely to end up with inefficiencies or shortages (or both) over time.

 

[Ziggurat]

Closer to topic: for those of us without coverage prior to the ACA, the health care industry really doesn't resemble a free market. If you require a surgery, for instance, they won't give you an estimate. You can't meaningfully comparison shop. You have to have it done, so you're entirely at their mercy unlike a free agent with any meaningful decision making power in a free market.

There are exceptions.

 

[Neally]

The ACA specifies a minimum essential coverage.

Yep, and the result is an increase in the monthly premium for those people like me that didn't want or need the mandated added stuff. Obamacare has caused my medical insurance to go up.

 

[PhantomWolf]

But how do you do that without a free market? It's not as simple a question as you might think.

There isn't a free market in the Health Sector now, as others have pointed out, there is no "standard" costs for a service currently. As such a mystical free market isn't an answer because the customer has no ability to make a choice between competing products. You don’t exactly get to jump on the net and compare prices of five or six competing local hospitals before choosing which ER you are going to visit.

As to how to standardise the price, such a thing can be done by the providers themselves working out the costs for a service and then basing the national price on those prices. With the costs determined by a representative sample of the industry, it should be possible to determine a fair price.

Funding is simple. But it can also be paralyzing. Bureaucratically determined pricing isn't responsive to changing conditions, and that rigidity means you're likely to end up with inefficiencies or shortages (or both) over time.

Conditions don't change that dramatically over short periods of time. The cost of a service is highly unlikely to skyrocket, or drop substantially over a twelve month period. Neither are you likely to see huge changes in the demographics of an area during that time with no warning signs of it occurring except in extraordinary circumstances, such as a civil disaster, but then funding for that could easily be ready to flow as with all disaster relief.

The major issue with Bureaucracy is that you get people in there that like to tie things up in red tape and slow them down, but that can happen in the private sector as well, for instance when I was in the US I had to go to the ER. It took my Insurance 3 months to pay the bill to the US Holding Company and then it took them another two months to actually pay the bill. Really efficient that, and 5 months of serious stress for me.

 

[Ziggurat]

As to how to standardise the price, such a thing can be done by the providers themselves working out the costs for a service and then basing the national price on those prices. With the costs determined by a representative sample of the industry, it should be possible to determine a fair price.

You can get a reasonable measure of the cost this way, but it's the cost of doing something in a very specific way. The problem is that the way you're currently doing it (or even what you're doing) isn't necessarily optimal. Fixing the price will tend to freeze the process as well. It stifles innovation. Why become more efficient, or do things in a more efficient manner, if you can't earn more money by doing so? Why do things better if you can't charge a premium for it?

Conditions don't change that dramatically over short periods of time.

But they do over longer time scales. And no matter how you try to arrange your bureaucracy, you're still removing the normal price signalling mechanisms. That will always come at a cost. Maybe you're satisfied paying the cost in order to achieve some other benefit, but you can't avoid paying it.

The major issue with Bureaucracy is that you get people in there that like to tie things up in red tape and slow them down, but that can happen in the private sector as well, for instance when I was in the US I had to go to the ER. It took my Insurance 3 months to pay the bill to the US Holding Company and then it took them another two months to actually pay the bill. Really efficient that, and 5 months of serious stress for me.

The "private sector" in health care in the US didn't resemble a free market before Obamacare, and it severely distorted price signalling. Like I said before, it had the worst properties of a free market but without the benefits.

 

[thaiboxerken]

It's pretty sad that Zig thinks money is the only thing that motivates people to invent and innovate.

 

[Biscuit]

Yep, and the result is an increase in the monthly premium for those people like me that didn't want or need the mandated added stuff. Obamacare has caused my medical insurance to go up.

Even if that's true it would have gone up anyway and now you have a whole host of benefits you never had before and more are coming, all of which would never happened without the ACA.