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Posted at 5:26 PM ET, 12/ 3/2010

A worst-of-both-worlds health system

By Ezra Klein

Earlier in the week, I wrote about a report that cost controls in Medicare are driving some doctors to abandon the system and focus their efforts on patients whose insurance companies will pay them more money.

The problem is that Medicare can't control costs too much better than private insurers or . . . doctors will simply abandon Medicare. In a world where there's only Medicare and Medicare decides to control costs, doctors can either take the pay cut or stop being doctors. And as we see from other countries, lots of people want to be doctors, even if being a doctor doesn't make you particularly wealthy. But in a world where Medicare is just one of many payers and Medicare decides to control costs, doctors can simply stop taking Medicare patients and a lot of legislators will lose their jobs.

There's another side of this, too: Just as private insurance handicaps Medicare's potential advantages, so too does Medicare handicap private insurance. Medicare is such a giant payer that it's easier for everyone involved to just do things pretty much as Medicare does them. Medicaid and private insurers frequently base their payment rates on Medicare's, and the same goes for things such as the way they deal with medical errors and pay doctors. Dealing with dozens of different payers is hard enough for hospitals as it is. They're really not interested in dealing with dozens of payers who do things in dozens of different ways.

The advantage of a single-payer system is that the payer has total bargaining power and can pretty much dictate prices. The disadvantage is that it's not particularly innovative or agile. The advantage of a multi-payer system is that competition generates experimentation and innovation. The downside is that the payers don't have much power to bargain with the providers.

Our system is the worst of both worlds: high prices, low innovation. Medicare can't do what it's best at because if it holds costs too low, doctors threaten to stop working with the system, insurers scream about "cost shifting" (wherein doctors charge them higher prices to make up for Medicare's new rates) and politicians quickly reduce the pressure. As for the private insurers? There are a lot of reasons that the private market doesn't work better, but the reliance on Medicare's procedures and standards doesn't help.

By Ezra Klein  | December 3, 2010; 5:26 PM ET
Categories:  Medicare  
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Comments

1) Some doctors can stop seeing Medicare patient by shifting to other patients, but they all can't, because there aren't enough other patients. They'd have to take too big a hit to their incomes

2) What evidence is there that single payer systems are not particularly innovative or agile? They seem to do better than us on just about every statistical measure of quality.

3) A larger supply of doctors would help. More medical school admissions, more immigration of doctors, as would other steps to restore competition to the market.

Posted by: fuse | December 3, 2010 5:34 PM | Report abuse

I think it is a disgrace that doctors can simply refuse to take Medicare or Medicaid patients , where in the Hippocratic Oath does it say ,," depending on the insurance the patient has " ?.

Posted by: sligowoman | December 3, 2010 6:15 PM | Report abuse

So you're arguing that our current system is experimental and innovative?

Posted by: pj_camp | December 4, 2010 1:02 PM | Report abuse

"3) A larger supply of doctors would help. More medical school admissions, more immigration of doctors, as would other steps to restore competition to the market.

I think it is a disgrace that doctors can simply refuse to take Medicare or Medicaid patients , where in the Hippocratic Oath does it say ,," depending on the insurance the patient has " ?. "

--Healthcare is not a free market system, increasing numbers of doctors will only INCREASE costs, not reduce them. The amount of Medicare dollars paid to each individual doctor has gone down drastically in the last 15-20 years, yet the total billing by doctors has gone up 50 fold. The reason is because Medicare is now paying 20 doctors to take care of the same patient, whereas 20 years ago only 2-3 doctors were involved. More doctors increases costs, it doesnt reduce them.

--The Hippocratic oath is irrelevant. It does not state that you have to agree to take every patient regardless of how much they want to pay. It does not say that doctors have to treat patients for free either.

Posted by: platon201 | December 4, 2010 2:40 PM | Report abuse

"The advantage of a single-payer system is that the payer has total bargaining power and can pretty much dictate prices."

This is the whole problem right here. Ezra and the socialists/liberals/;communists/socialists idea for cost control is the full force of government.

What Ezra et al should be focusing on are ways to bring down costs by competition as was done in the airlines, electricity and phone industries.

Several common sense suggestions would be to make it easier to build medical schools, don't allow physicians to self deal such as investing in the institutions they refer patients to, etc.

Instead, Ezra wants Big Fed to run every aspect of your life.

Posted by: WrongfulDeath | December 5, 2010 1:40 PM | Report abuse

Maybe it would also be good to have government own all of the news media and then tell Ezra that they're not going to pay him but half what he's been making in salary.

It's always eaiser when it's not YOUR ox that's being gored.

Posted by: WrongfulDeath | December 5, 2010 1:42 PM | Report abuse

I see some chronic misconceptions about private insurance payers v medicare/medicaide. Private insurance just uses medicare as a floor to base payments on. Medicaide pays much less than medicare (providers/clinics lose money when seeing these pts-which is why many are closing down) Private insurance has ALL the power to bargain with Drs/hospitals which is why these large multispecialty practices have evolved and hospitals are merging with others to form "networks". It gives providers bargaining power! Doctors don't "charge" insurance companies-reimbursements are prenegotiated when the contract is signed. Our insurance companies are on the stock exchange and don't care what laws are passed. They simply keep raising premiums to maintain their profit margin. As I often tell my patients, "they dont deny care, they just deny to pay for it". A single payer system, at least as an option, would help bring down premiums (which is what we are really talking about when discussing health care costs). But as we saw with the recent health care reform discussions, private insurers went berserk at the thought of a gov't option! The private health insurance market is an aggressive for profit system and it is not working for the average american.

Posted by: NYnursepractitioner | December 6, 2010 1:22 PM | Report abuse

This is a very easy problem to solve. As a condition of being licensed to practice medicine in all 50 states, all doctors must be required to take Medicare recipients. If doctors don't want to participate, let them move to Mexico, Canada, the European Union or some other country. The will find out quickly that the best deal around is the USA with Medicare.

Posted by: GKSanDiego | December 6, 2010 2:23 PM | Report abuse

Ezra (and others) ALMOST get their arms around the real problem: we don't have a free market for medical care. We have a heavily-controlled market in which providers have vastly more market power than patients (who often have almost none).

The single largest manifestation of this is the AMA's total control over admissions to medical school and setting the qualifications and requirements to practice medicine. If a plumber's professional association had similar government-backed power, every plumber would be driving a Lexus and retiring at age 40... and the poor would be going back to outhouses.

Prices for medical care in the US, rising faster than other prices, reflects this distortion. Until it is addressed, reform will not bring prices down....and we'll continue to argue only about how to pay the inflated prices.

Posted by: Iconoblaster | December 6, 2010 3:04 PM | Report abuse

The largest payers are reimbursing physicians very, very close to Medicare rates. As these same big payers cannibalize the market through acquisition of small payers ( without as much negotiating leverage) the same physicians will not be able to refuse their contract rates nor have enough higher paying insured patients to sustain them. Ergot rates will be Medicare and the differential will no longer matter so much. Today the payers sometimes capitulate to large medical groups because they are a fraction of their costs and sales are harmed by terminations or a less than competitive network. Its a matter of time. The problems that affect healthcare costs that are more problematic in the long run are hospital costs, medical device costs and pharmaceiutical costs.

Posted by: reddog3 | December 6, 2010 5:31 PM | Report abuse

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