Question to Paul Ryan: If Private Insurance in Place of Medicate is Going to Control Costs, Why Hasn’t Private Insurance Done So in the Non-Medicare Population

Easy Answer Mr. Ryan – Because It Cannot

The Dismal Political Economist has continually raised two questions about Rep. Paul Ryan’s Plan, now the official Plan of the House of Representatives, with respect to replacing Medicare with private health insurance.

1. IF the Plan is so good, why wait, why not implement it ASAP?

2. If Private Health Insurance is so good at controlling costs in health care, why hasn’t it done so in the non-Senior sector?

Thanks to Paul Krugman, we now have nice evidence of a comparison between real costs as paid for by Medicare and real costs as paid for by private insurance. 

If Medicare costs had risen as fast as private insurance premiums, it would cost around 40 percent more than it does. If private insurers had done as well as Medicare at controlling costs, insurance would be a lot cheaper.

So why is this the case?

1.      Private insurance does not have the bargaining power of Medicare with its huge patient base.

2.      Private insurance has much greater administration costs than Medicare, which is a single payer because there must be an administration department for every carrier.

3.      Private insurance in many case is a for-profit organization.  That profit must be paid for by the insured.

4.      Medicare has huge pressure to reduce costs because it is taxpayer funded.  Private insurance can pass cost increases on to the insured.

So, what to look forward to in the unlikely event Mr. Ryan’s plan is implemented?