Yes, Ezra: Medicare And Medicaid ARE Shockingly Expensive

by Pejman Yousefzadeh on July 29, 2009

Jeffrey Anderson refutes Ezra Klein on the issue of Medicare and Medicaid costs. I don’t like lengthy excerpting, but here, it seems worth doing:

Advocates of ObamaCare like to rely on studies comparing the cost-increases of government-run care with the cost-increases of private insurance. But such studies completely ignore private out-of-pocket costs. They ignore the fact that out-of-pocket costs have gone from being 62 percent of the private market in 1970 to just 26 percent today — and that private insurance correspondingly covers almost twice as much care today as it did back then (74 percent compared to just 38 percent). They completely ignore a profound shift in the private market and draw conclusions as if that shift had never occurred. It’s a lot like looking at LP and CD sales, but ignoring MP3s, and concluding that Americans are no longer as fond of music.

If you look at all of private care, and don’t just cherry-pick a select part of it, the picture is quite clear. As my study for the Pacific Research Institute shows, since 1970, the costs of Medicare and Medicaid have each risen one-third more, per patient, than the combined costs of all other health care in America — the vast majority of which is purchased privately. Medicaid’s costs have risen 35 percent more, and Medicare’s 34 percent more, per patient, than the combined costs of all other health care nationwide.

The costs of the two flagship government-run health-care programs have also outpaced all other nationwide health costs since 1980, 1990, and, in Medicare’s case, 2000. (Medicaid’s costs haven’t risen much since 2000, as billions of dollars have been shifted from Medicaid to SCHIP.)

Moreover, my study is quite generous to Medicare and Medicaid in a variety of ways. It counts the Medicare prescription-drug benefit among the costs of private care rather than among the costs of Medicare, it doesn’t adjust for the cost-shifting from Medicaid to SCHIP, and it counts all care that is purchased privately by Medicare and Medicaid beneficiaries (including Medigap insurance and Medicare copayments) among the costs of private care without counting those who receive it among the recipients of private care. (Because Medicare’s and Medicaid’s enrollments have increased disproportionately over time, this magnifies private care’s per-patient cost-increases.)

Despite all of these advantages, on a per-patient basis, for every $3 that all other U.S. health-care costs have increased since 1970, Medicare’s and Medicaid’s costs have each risen more than $4. Klein and Co. can only claim otherwise by completely ignoring a major chunk of the private market.

It is clear to everyone that Medicare and Medicaid costs are spinning out of control. Medicare’s hyper-expensiveness is, after all, the reason why the Independent Medicare Advisory Commission is being pushed as a cost-saving measure by the Obama Administration (never mind that IMAC won’t really do anything). To claim that Medicare and Medicaid are somehow less expensive than people think they are by ignoring the private costs associated with both is more than a little disingenuous.

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