Traditional Medicare is cheaper


OK, you knew that already. But what are the implications for access to care?

t probably won’t come as a surprise to you that traditional Medicare (TM) pays lower health care prices than commercial market insurers. We’ve known this for quite some time. A significant issue, however, is whether lower TM rates lead (or could lead) to reduced access to care for Medicare beneficiaries.

Jacob Wallace and Zirui Song took up the issue in a Health Affairs paper published last year. They examined health care price and utilization of outpatient imaging and outpatient surgical procedures across the 65-year divide — when most people become eligible for Medicare. Their data included just over 200,000 individuals captured in Truven Health Analytics’ 2007–2013 Medicare and Commercial Claims and Encounters database with broad-network, commercial market insurance before age 65 and TM from age 65 onward.

As shown in the chart just below, unadjusted, per beneficiary, quarterly spending trends for outpatient imaging and procedures are about the same before and after Medicare eligibility, but there is a large discontinuity when Medicare eligibility begins. In the last quarter before age 65, spending for a privately insured patient is about $119. At age 65, on Medicare, that drops 25% to about $89. After adjusting for age, quarter, year, and individual fixed effects, the relative change upon Medicare eligibility is even larger: 32%.


One thought on “Traditional Medicare is cheaper

  1. This issue has been – and will continue to be – the source of one of the biggest political struggles of this century. Patients have seen an unarguable rise the cost of healthcare since the inception of Medicare. During this same time period, Medicare beneficiaries have shared less and less of the OOP cost of this benefit. This entitlement is seen by Seniors as a “bought and paid for” benefit, but only a fraction of current spending is paid for by monies previously paid into the system.

    I found a lot of great info in this article by Sean Davis:

    There is a lot to digest there, especially in light of the ACA passage and its possible replacement. The kernel of truth is that Medicare has done little to improve healthcare costs since its inception. In fact, the reality is that the plan might cause overspending (i.e. 25% of Medicare spending is on End of Life care) because patients and their surrogates do not have skin in the game.

    Shifting the cost to the working class may have been fine during the 80s and 90s. However, in the 21st Century, one source of income that will certainly not be the solution to the healthcare crisis is tax revenue from cash-strapped Millenials. The generation known for their lifestyle-focused philosophy will continue to be slow to the job market and won’t even be close to paying off their student loans for the next three decades. Millenials can ill afford to finance the healthcare of their grandparents!

    Using below market rates for nearly half of the medical population drives some physicians away from the gov’t plans and decreases access. A future in which Medicare rates are 20% of commercial rates – as the graph predicts in 2080 – is a ridiculous proposition. Such a reality would be wholly untenable for all but the most desperate (think poor quality) physicians. Unless other models of reimbursement are developed, patient access will dwindle at the same exact time that the baby boomers are needing this care the most.

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