Comparing Medicare and Private Cost Growth: Lessons from the Past, Guidance for the Future

Numerous comparisons have been made between the rates of spending growth in Medicare and private health insurance. Many believe that private sector innovations present opportunities for constraining Medicare costs. Nonetheless, recent research looking at the past 30 years concludes that Medicare spending growth has been similar to the private sector, and at times even slower. Figures from the Centers for Medicare and Medicaid Services show Medicare cost growth was lower than that of private insurance in 2000 and 2001. Some of the difference may be attributed to the fact that private insurance, unlike Medicare, usually covers outpatient prescription drugs, one of the fastest-growing segments of health care. Moreover, some analysts say that Medicare’s relative success in controlling costs has been at the expense of quality and access.

What can we learn by comparing past Medicare and private sector spending growth? How successful have cost containment measures been in the two sectors? Have there been negative effects in either access or quality from cost containment efforts in Medicare? In the private sector? What factors affect the rates of growth in the two sectors? What effect would the addition of a prescription drug benefit have on Medicare spending rates? What is being proposed to limit cost increases in the Medicare program in the future? Can private sector involvement in Medicare reduce costs?

These questions and others were addressed at a March 17, 2003 briefing cosponsored by the Alliance for Health Reform and The Commonwealth Fund. Speakers were: Marilyn Moon, a senior fellow with the Urban Institute and a former trustee of the Medicare program; Joseph Antos, the Wilson H. Taylor Scholar in health care and retirement policy at the American Enterprise Institute; and Karen Davis, president of The Commonwealth Fund. Ed Howard of the Alliance moderated the discussion.