Unbiased Analysis of Today's Healthcare Issues

Does Medicare contain spending growth better than private insurance?

Written By: Jason Shafrin - Jul• 27•09

A paper by Boccuti and Moon (2003) believes it has. Annual per enrollee cost growth between 1970 and 2000 was 11.1% for private insurers, but only 9.7% for Medicare. Why is this?

While cost growth between for Medicare and private insurance very similar for hospital services, private health insurance has had much steeper cost growth for physician services. Does this mean that those with private health insurance get better care (e.g., shorter wait times for appointments, more physician selection) or worse (e.g., too many unnecessary services, uncoordinated care).

Methodological Points

The authors claim that three characteristics are essential to make this comparison accurate:

  1. Compare cost growth on a per enrollee basis. This is important but is only valid if populations are fairly stable over time. The Medicare population over time likely changes little (everyone over 65 gets Medcare), but with SCHIP and Medicaid expansions, those covered by private insurance in 2009 likely look a lot different from people with private health insurance in 1989.
  2. Calculate the cumulative impact of spending growth. By this, the authors mean that you shouldn’t overly rely one or two years of data. Short run fluctuations ofter even out over time.
  3. Compare similar services. Ideally, the authors would compare the cost of treating each disease for Medicare patients and those with private insurance. Instead the authors settle on hospital and physician services. These two broad categories give a good overview of total cost increases, but may be of limited value of identifying for which diseases is cost growth a problem.



  1. John says:

    Does this take into account the increasing amount of cost shifting being forced onto the private sector?

  2. kingstu says:

    Doesn’t monopsony power explain this?

  3. or it could be that the cost shifting from Medicare to private payers has gotten worse, hence the comparative cost increases.

  4. […] Does Medicare Contain Spending Growth Better than Private Insurance? — Healthcare Economist – Yes, according to this research. […]

  5. The moment medicare patients beecome medicare advantage pts cost goes up by 15% plus medicare cost. There is no senior Private Insurance pts. as such they all all, almost all of them converted pts. from medicare.I donot see how you can compare both of them in terms of cost?I think you can compare their utilization and quality scores and comapre them to cost associated with them. In general LOS for Medicare pts in hospital is almost 1..5 days longer than HMO senior pts but as studies has shown in past that thew cost variance is not much different. This was the main reason many hospitals started having hospitalist to control LOS but has saves may be @368 dollars in best scenario on per case basis. Most of HMOs pts are discounted by HMO contract but for medicare it is prospecive payent system. Pts are more expensive when under HMO then Medicare. Mecicare is not for profit and HMO is for as much profit as possible???Your question is basically oxymoron in my opinion.

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