Monday, November 29, 2010

Medicare Controls Costs Better Than Private Insurers

This graph (via Brad DeLong's website) shows that Medicare's cost for delivering a common benefit is less than that for private insurers. Moreover, the trend for cost reductions is steeper over time with Medicare. These data run counter to GOP claims that Medicare is unable to control its costs.

Actually, the inability of private insurers to control costs and premium growth makes it more difficult for Medicare to control costs. One of the problems with a mixed private and public insurance system is that doctors prefer to provide services to those who will pay the highest price. As long as private insurers are willing to pay higher prices, Medicare must limit its cost controls or doctors will reduce services to Medicare patients. That is one of the reasons why Canada has a single payer insurance system. Government in Canada is better able to control costs without the threat from higher paying private insurers.

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