Friday, August 10, 2012

Medicare and Medicaid Spending Per Enrollee Is Lower Than Private Insurance

This graph tells an important story.  Government provided insurance costs per enrollee are lower than private insurance costs per enrollee.  Part of the explanation for lower cost in government programs is due to market power.  They have negotiating power with healthcare providers that private insurers do not have.  Healthcare providers and private insurers operate in local markets.  Private insurers compete with each other in these markets.  They often make deals with supplier networks to gain advantages against other insurers.  Some might argue that private insurers provide more benefits and that is why their costs are higher.  We should keep in mind that Medicare and Medicaid provide benefits to high risk pools.  Private insurers can be more selective in choosing their clients.

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