Health Spending Would Drop by $352 Billion if Private Insurance Paid Providers at Medicare Rates

Too good to be true? No doubt such level of savings are theoretically possible because the difference in payments between Medicare and private insurance is fact.

But setting fees and controlling their rate of increase consistent with budgets in an effort to manage costs, has consequences. Resources may be limited, personnel shortages may be created, indirect forms of rationing may result. If hospitals and physicians are not operated by or on salary to government, lower fees can create pressure to provide more services.

Analysis: Spending on Health Care Would Drop by an Estimated $352 Billion in 2021 if Private Insurance Used Medicare Rates to Reimburse Hospitals and Other Health Care Providers 

But be careful what you ask for

Findings Illustrate the Potential Magnitude of Savings from Policies to Rein in Health Care Prices

Total health care spending for people with private health insurance would be an estimated $352 billion lower in 2021 if private insurers used Medicare rates to pay hospitals and other health care providers, rather than the substantially higher rates they currently pay, a new KFF analysis finds.

That would represent a 41 percent decrease from the $859 billion in projected health care spending for people with private insurance this year. The resulting savings would be spread among employers ($194 billion) and employees ($116 billion), and the non-group market ($42 billion), assuming proportional savings throughout the private insurance market.

Among other key findings:

• Nearly half (45%) of the total reduction in spending would be for outpatient hospital services, where the price gap between private insurance and Medicare is relatively large, 27 percent for inpatient services and 14 percent for physician office visits.

• About a third of the reduction would come from lower health care spending for privately insured adults ages 55-64 who tend to use more health care services than younger Americans.

• On average, health care spending per person with private insurance would be an estimated $2,096 less for adults ages 19-64 and $1,033 less per child if Medicare rates were used.

Over the years, federal and state lawmakers have proposed using Medicare rates to rein in health care prices. The new KFF analysis does not examine a particular health reform plan and is not intended to be a forecast, prediction or an endorsement of the policy. Instead, it illustrates how lower payment rates could reduce health spending.

Those payment changes could be implemented through a variety of proposals such as Medicare for all, a public option, lowering the age of Medicare eligibility, or all-payer rate-setting. Policies that resulted in private insurance payment rates that were a multiple of Medicare would result in proportionally fewer savings.

The KFF authors note that proposals to limit private insurance reimbursement to Medicare rates could lead to substantial reduction in health care spending, but would undoubtedly be met with fierce opposition from health care providers, since the decrease in spending would translate into a significant drop in their revenues.

The analysis does not estimate the likely effects of a change in service utilization (supply or demand) on spending. It also does not estimate the indirect effects on government revenues or spending, or decreases in health-related tax subsidies for employers or individuals that that would offset savings.

For the full analysis, as well as other data and analyses related to health spending and health reform proposals, visit kff.org.

3 comments

  1. The principal difference between free market capitalism and socialism is who sets prices: private enterprises or the government. This proposal would take us further along the road to socialism. I’m against it.

    Liked by 2 people

  2. I am all for it they can figure out how to keep the healthcare providers in business. The providers and insurance carriers know that the private side subsidies Medicare. But nobody knows what the true costs of medical care is because everybody has their side deals and will accept pennies on the dollar from some carries for some things. Of course if you have no insurance you pay full price so that can prove that is the going rate to discount from.

    Maybe they should determine what the true costs are from the VA. VA services are paid for by the government. Could the VA hospitals stay open being paid only Medicare rates?

    I really would like to know the result of that study.

    Then we can look at the poor access and quality of care at the VA and study if all providers would have to lower their standards.

    Forget $0.35 / gal gas. In a few more weeks, I’ll be happy to have gas under $3.00 / gal. again.

    Liked by 1 person

  3. Works for me. Can Congress do something about the cost of beef, gasoline, etc.? I’d like to pay less. How about $.35/gallon gas, or $1.29/lb for rib eye (what I paid in 1970)?

    Obviously, the idiots who wrote this study don’t realize (or don’t agree) that the cost of health services and products charged to those not covered by Medicare has dramatically increased in part because Congress capped medical spend for Medicare beneficiaries to buy votes. They call it cost shift, baby!

    This goes back to the Medicare Catastrophic Coverage Act of 1988. There, Medicare beneficiaries would have their out of pocket costs capped at $2,000 a year. Passed by Congress. Signed by President Reagan. Endorsed by AARP.

    Only problem was who was gonna pay for the increased coverage? Once seniors found out that they themselves would see their taxes and premiums increase to fully fund the increased coverage to Medicare beneficiaries, a 1/6 “riot” ensued, grab your pitchfork, and have them wheel you into your representative’s office.

    It is one of the few pieces of legislation that I saw reversed prior to it becoming law.

    But Congress heard. And guess what, they saw an opportunity to buy votes and send the bill to everyone else. We now have RBRVS, DRGs and Balance Billing limits. And, point of purchase cost sharing for Medicare beneficiaries, deductibles coinsurance, etc., has increased only 3% or so for the past 35+ years!

    Same old story. I want the best medical coverage that YOUR money will buy!

    Liked by 1 person

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