Take 2: Does the Free Market Hold Down Healthcare Costs?

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A couple of days ago I wrote a post about the cost growth of Medicare compared to the cost growth of private healthcare, along with a bit of speculation for the reason that private healthcare costs have grown faster. The post was a bit rushed, and I’ll probably try to expand on it in the future. For now, though, I just want to present a couple of pieces of raw data comparing Medicare costs to private healthcare costs. First, here are the basic BLS figures on overall growth trends, with 1992 indexed to 100:

This tells us that overall costs of private healthcare have grown faster than Medicare, but it doesn’t tell us why. It might be demographic, it might be because private insurers cover more procedures, or it might be due to cost growth of specific procedures. The latter is the one I’m most interested in at the moment, so here’s a bit of data from a paper by James Robinson earlier this year:

We now know two things:

  • The overall cost of private healthcare has risen faster than Medicare over the past couple of decades.
  • The current price of specific procedures is higher for private insurers than for Medicare.

But here’s what we don’t know:

  • Has the price of specific procedures gone up faster for private insurers than for Medicare?

Unfortunately, it appears that time series data on specific procedures isn’t available, so we don’t really know whether private insurers have put as much pressure on providers to keep prices down as Medicare has. It’s a good guess that they haven’t, but you can’t tell for sure from this data. What’s worse, even if we assume they haven’t done a good job of controlling costs, it’s still pretty difficult to say why. These numbers are averages, and they vary by region, by level of competitiveness, by the possibilities for cost shifting, and so forth. More on this later.

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DEMOCRACY DOES NOT EXIST...

without free and fair elections, a vigorous free press, and engaged citizens to reclaim power from those who abuse it.

In this election year unlike any other—against a backdrop of a pandemic, an economic crisis, racial reckoning, and so much daily crazy—Mother Jones' journalism is driven by one simple question: Will America move closer to, or further from, justice and equity in the years to come?

If you're able to, please join us in this mission with a donation today. Our reporting right now is focused on voting rights and election security, corruption, disinformation, racial and gender equity, and the climate crisis. We can’t do it without the support of readers like you, and we need to give it everything we've got between now and November. Thank you.

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