Most experts agree that health care costs in the US are out of control. And, Congress needs to rein them in because corporate health insurers have shown year after year that they cannot. Gerald Friedman and Travis Campbell explain in The Hill that the best and only way to bring costs under control without reinventing our health care system from scratch is to improve and expand on Medicare.
The two biggest cost drivers in our health care system are: 1. the prices we pay for care and medicines; and 2. the hundreds of billions we spend in administration. Unfortunately, making it easier to enroll in the Affordable Care Act’s health insurance exchange plans through bigger subsidies, one of President Biden’s health care reform proposals, will do nothing to address either of these cost drivers. (It should improve access.) Another of Mr. Biden’s proposals, expanding Medicare, could be a big step forward in reducing costs, depending upon how it is done. (It should also improve access.)
Medicare does a far better job of controlling costs than private health insurance. In the last 12 years alone, the per person cost for Medicare has gone up 26 percent. The per person cost for private health insurance has gone up 51 percent, almost double Medicare. Private health insurers now pay more than twice as much as Medicare for inpatient and outpatient hospital services. They pay 43 percent more than Medicare for physician services.
On top of provider costs, private health insurers have astronomically high administrative costs relative to Medicare. Medicare’s administrative costs are one-tenth of private insurance. Consequently, expanding Medicare to everyone would generate costs per person that are 30 percent lower than they are today for people with private insurance.
The ACA exchange plan premiums cost an average of more than $13,000 a year for a 64-year old. That’s double what Medicare spends for a 65-year old. It’s easy to see why moving people into Medicare reduces overall health care spending. Thankfully, President Biden supports that move.
In short, helping more people receive insurance through the ACA state health insurance exchange plans only drives up costs. Subsidies that lower premiums do not address high provider or administrative costs. Rather, they increase national health spending. Moreover, out-of-pocket costs in these plans are so high that, even with insurance, many people will not be able to get care.
If the goal is insuring more people, opening up Medicare to more people is far more cost-effective than providing people with subsidies that make it less costly for them to enroll in private health insurance.
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