A worst-of-both-worlds health system
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.
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