Ezra Klein on Medicare as the Worst-of-Both-Worlds

by Reihan Salam

Having posted on Ezra Klein’s framing of Medicare’s impact on medical cost growth, I was very pleased to read a recent post of his that offers an astute take:

 

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.

I tend to think that a well-designed multi-payer system is the right way to go, and that shifting Medicare to a premium support model would help. There will be plenty of disagreement on this question, but it’s good to acknowledge the limitations that Medicare’s existing FFS structure creates serious problems for other parties in the health system. 

For more on this subject, I highly recommend the work of MIT economist Amy Finkelstein. Arpit Gupta has kindly directed me to her work. This WSJ op-ed from 2007 is a good place to start.