Igor Volsky at Think Progress brought this recent report (PDF) from the Massachusetts Division of Health Care Finance and Policy to my attention. It adds even more proof to the mountain of evidence that private health insurance companies in America are a total failure at cost control. The study found that private insurance health care cost grow in the state grew much faster than public health insurance cost.
Spending by private payers grew faster than spending by public payers. The rate of growth for spending on privately insured people from 2007 to 2008 also outpaced the growth in spending for Massachusetts residents in Medicare (4.8 percent) or MassHealth (2.8 percent) during the same time period (Figure A). The rates of growth for both private and public payers in Massachusetts continued to outpace increases in per capita state gross domestic product and wages.
Even more important than the fact that private insurance cost grew faster that public insurance is the reason private insurance cost went up. It was not a result of the people covered by private insurance using more health care services but mainly a result of providers charge significantly higher prices for the services they did use.
Faster growth in spending by private payers was largely the result of increasing prices
Rising prices played a significant role in increasing private spending for inpatient and outpatient hospital services, as well as physician and other professional services. Higher prices explained virtually all of the increase in private inpatient spending from 2007 to 2009. Similarly, increases in prices accounted for about half of the growth in outpatient spending from 2007 to 2008, and virtually all of the growth from 2008 to 2009 (when spending per member year grew 13 percent). For professional services, higher prices explained 77 percent of the growth in spending from 2007 to 2008, and 88 percent of the increase from 2008 to 2009.
In each of the three categories, higher total private spending was predominately driven by price increases. For inpatient and outpatient hospital care, “pure” price growth accounted for most of the change in total spending. Neither changes in the distribution of care across providers nor service mix contributed nearly as much to spending growth as increased prices. For professional services, the impact of pure price was slightly less clear, due to the challenge of identifying shifts in the distribution of service use among providers. However, the same pattern was apparent: price changes drove most of the change in total spending each year.
In contrast, growth in Medicare and MassHealth spending per member year predominantly reflected increased service use per member year.
This is one of the largest of America’s many health care cost problems. The many private insurance companies lack the market power, will and/or ability to negotiate with providers for low prices. Forcing low income individual or senior citizens to shop for private insurance on an exchange will do nothing to address the problem.
The only way to fix this issue is to give everyone access to the government’s huge market power and ability to negotiate for lower prices. The best and simplest way is with single payer, Medicare for all.
You can also indirectly replicate most of the benefits of using the government’s market power with all-payer, where the government works with all the companies to agreed on one fixed set of prices everyone one will pay. In addition to getting lower prices you also eliminate a huge amount of the administrative waste which comes from each payer having a different price negotiated with every provider.