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Medicare Outperforms Private Insurance at Containing Health Care Spending, 30-Year Trend Shows

Success Provides Important Lessons for Medicare Reform Debate

Document date: March 11, 2003
Released online: March 11, 2003

Contact: Mary Mahon: (212) 606-3853 / mm@cmwf.org
Bill Byrne: (212) 606-3826 / bkb@cmwf.org
Susan Brown, Urban Institute: (202) 261-5702, sbrown@ui.urban.org

New York City, March 11, 2003—Medicare health care spending per enrollee rose at a slower rate than private health insurance between 1970 and 2000, according to an article published in Health Affairs with support from The Commonwealth Fund. The analysis, by Cristina Boccuti and Marilyn Moon of the Urban Institute, also compares spending for comparable health care services, revealing that private insurance still experienced a higher cumulative rate of spending growth than Medicare over the three decades. These findings have important implications for the debate over Medicare reform proposals, particularly the issue of a prescription drug benefit.

"Over the long term Medicare has proven to be a prudent health care purchaser, with the ability to leverage power in the health care marketplace," said Karen Davis, president of The Commonwealth Fund. "Policymakers debating how to provide a Medicare drug benefit should keep Medicare's track record in mind."

Cumulative Growth in Per Enrollee Payments for Comparable Services, Medicare and Private Insurers, 1970-2000

Boccuti and Moon analyze cumulative per-enrollee spending over a thirty-year period, providing a more accurate comparison than short-term analysis, which can be distorted by annual fluctuations due to legislation enacted and cost control mechanisms. The per-enrollee analysis also accounts for a covered population's growth or decline over time.

Medicare Performs Better Than Private Insurance on Several Measures

A comparison of average annual per enrollee growth rates since 1970 reveals that Medicare spending grew at an average annual rate of 9.6 percent, slower than the average annual growth rate of 11.1 percent for private health insurers.

Analysis of cumulative spending over the thirty-year period illustrates the impact of cost containment efforts over time. Using this method, Boccuti and Moon compare Medicare and private insurers' cumulative growth in per enrollee payments for personal health care from 1970 to 2000. By 2000 the private insurers' index was 44 percent higher than that for Medicare.

Boccuti and Moon also compare services that are covered by both Medicare and private insurers, finding that private insurance still experiences a higher cumulative growth rate per enrollee than Medicare over the 30-year period.

"Medicare's long-term success in holding down spending is partly a result of its structured payment systems and regulatory controls," said Marilyn Moon, senior fellow at the Urban Institute. "Reform proposals could rely on the ability of Medicare to hold down per enrollee costs as long as it continues to play a meaningful role in purchasing benefits and services, keeping in mind that Medicare cannot be an inadequate payer without risking patients' access to care."

For more health-related research from the Urban Institute, go to http://urban.org/r/health.cfm. Note to press: a PDF version of the Health Affairs article by Cristina Boccuti and Marilyn Moon is available by contacting the Urban Institute's Office of Public Affairs at paffairs@ui.urban.org or (202) 261-5709.

The Commonwealth Fund is a private foundation supporting independent research on health and social issues. To order publications, visit our website at www.cmwf.org, or call 1-888-777-2744.

The Urban Institute, located in Washington, D.C., is a nonprofit, nonpartisan policy research and educational organization that examines the social, economic, and governance challenges facing the nation. For more information, visit www.urban.org.

Topics/Tags: | Health/Healthcare

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