Employer

Guest post written byUwe Reinhardt

Mr. Reinhardt is the James Madison Professor of Political Economy at the Woodrow Wilson School at Princeton University.

Every so often in punditry land there appears a column so egregiously flawed that it makes a perfect platform for a homework assignment in undergraduate health-economics courses. With a straight face and little commentary, one mandates students to fact-check the piece and to examine its inherent logic. Students relish taking apart in this way the scribblings of seasoned adults.

So we must thank Sally Pipes for contributing to pedagogy a veritable jewel along these lines in her July 28 Forbes article, entitled ' Employer Health Insurance: A Bargain Compared to Government-Sponsored Coverage.'

In that column, Ms. Pipes asserts that 'employers are spending much less per person than is the government - about 60 percent less.' She bases that assertion on a study according to which employers spent $3,430 on health care per person in 2012. By contrast, government programs were found to spend $9,130.

'Encouraging the expansion of employer-sponsored insurance would therefore seem to be more cost-effective than handing out government coverage to more people,' Ms. Pipes concludes.

She notes that 'the study makes clear that some of the spending difference is due to the fact that Medicare, Medicaid, and the Veterans Health Administration tend to serve older, sicker, or special-needs populations. (Italics added).

Some of the spending difference?

Consider the following charts, which provide details on the Medicaid population. The data in these charts come from the Kaiser Family Foundation, widely considered an authoritative source of objective data on Medicaid.

Medicaid is actually a pastiche of four different programs: one for children, one for their mothers ('adults'), one for the blind and disabled - often severly disabled - and one for poor Medicare recipients, covering mainly nursing-home care and out of pocket acute care spending not covered by Medicare. Long-term care, inclusing nursing home care, plays a major role in Medicaid. Employers usually do not cover it.

Now does anyone possessed of a modicum of common sense really believe that the Medicaid population is even vaguely comparable to the population and the services covered by employer-sponsored health insurance? Does anyone sincerely believe that private insurers could cover Medicaid's high risk population for 60% less money than it costs Medicaid?

In their article ' What Difference Does Medicaid Make? ' Teresa Coughlin, Lisa Clemens-Cope, and Dean Resnick of the Urban Institute, using the publicly available Medical Expenditure Panel Survey (MEPS), simulated what difference in health-care utilization and total spending per person it would make if non-elderly adults, disabled and non-disabled, were covered instead by employment-sponsored insurance.

They found that there would not be significant differences in utilization, but that total health spending for these Medicaid beneficiaries would be 25% higher under employment-sponsored coverage and their out-of-pocket share of these costs would be three times higher. Presumably, spending would be higher because Medicaid pays providers lower fees than do private insurers. The study fully discloses its methodology and thus is open to peer review.

Ms. Pipes next asserts that 'Employer plans' costs aren't just lower - they've also been rising more slowly. Between 2003 and 2012, employer costs climbed 13.6 percent, after adjusting for inflation.'

That does not square with the data available from the Kaiser Family Foundation, as is shown in the chart below.

Nor does it square with data routinely reported by the Office of the Actuary (OACT) of the Centers for Medicare and Medicaid Services (CMS). The chart below, copied from Table 21 of a recent data release by CMS, shows that over the long haul, Medicare spending has actually grown less rapidly than has spending under private health insurance, especially when 'common benefits' are compared. Common benefits are those covered by both Medicare and private insurers.