Medicare, Medicaid better than private insurers at containing costs, study finds 

Calculator that says "Medicare" on it on top of money, next to bottle of pills
A new study compares how federal payers and private insurers keep per-beneficiary costs low. (Getty Images/liveslow)

Medicare and Medicaid are better than private insurers at keeping spending per-beneficiary low, a finding that has crucial implications for the current health policy debate, according to a new report. 

The Urban Institute dived into data from the Centers for Medicare & Medicaid Services’ national health expenditure reports from between 2006 and 2017 and found that per-enrollee spending increased by 2.4% each year in Medicare and 1.6% each year in Medicaid, while it went up by 4.4% annually in private plans. 

However, overall spending increased more quickly in the two federal payers than in the commercial market. Spending in Medicare went up by 5.2% per year and by 6% per year in Medicaid, compared to 4.4% in private coverage. 

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Those spending increases shouldn’t be cause for alarm, though, the researchers said. During the study window, enrollment in Medicare and Medicaid increased dramatically, thanks to an aging population and expansion under the Affordable Care Act, which would account for the overall spending increases. 

RELATED: 8 Medicare and Medicaid reforms that would have the biggest impact on federal spending 

The gap in cost containment runs counter to the idea that Medicare and Medicaid are the main drivers behind spending growth, according to the study, and instead points to private insurance as the problem. 

“Medicare and Medicaid are doing a good job of keeping per capita costs under control, though the continuation of recent polices is essential,” John Holahan, a fellow at the Urban Institute and one of the report’s authors, said in a statement emailed to FierceHealthcare. “The larger cost containment problems the nation faces are in the private insurance market.” 

The findings should call current health policy initiatives into question, the researchers said. Policy proposals can impact Medicare and Medicaid in different ways than they impact private insurance. 

For example, spending on drugs was the major source of growth in Medicare, while spending on hospital care was the driver in the private market, the researchers found. So while policies targeting drug spending in Medicare pay off, they might not get to the heart of the problem in private insurance. 

RELATED: Healthcare spending slows for 2nd consecutive year, remains at 18% of GDP 

On the other hand, public payers have greater leverage to negotiate with the increasingly consolidated hospital market, so policy approaches to address rising hospital costs will need to account for that, the researchers said. 

In addition, the study calls into question the need for far-reaching restructuring of Medicare and Medicaid, as has been proposed in several forms to address rising spending. As enrollment, and not individual spending, is likely the driver behind higher spending in these programs, major restructuring may not be necessary. 

“There is no need for major changes to Medicare and Medicaid that would reduce coverage and cause financial hardship,” Holahan said. 

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