Why Medicare and Medicaid Can Outmatch Private Plans on Cost

By Austin Frakt

Aug. 28, 2017

In recent days, Democrats have stepped into the health policy vacuum created by the Republicans’ failure to repeal and replace the Affordable Care Act. Proposals making the rounds include allowing Americans to buy into Medicare at age 55 or to buy into Medicaid.

Both Medicare and Medicaid pay lower prices to health care providers compared with private market plans offered by employers and in the Affordable Care Act marketplaces. On that basis, you might think these public programs are more cost-efficient. Are they?

Imagine that I take my car to the cheapest mechanic in town, while you take yours to the most expensive. My repairs, though costing less, don’t always fix the problem or last as long. You get what you pay for.

Let’s take a look at whether something similar is happening with public health programs. One study examined claims data for 26 low-value services and found that as much as 2.7 percent of Medicare’s spending is on these services alone, which include ineffective cancer screening, diagnostic testing, imaging and surgery. That sounds pretty bad.

But a paper that appeared in Health Services Research this year suggests that private plans do not perform better. Looking at the years 2009 to 2011, the authors compared the rates at which Medicare and private health plans provided seven low-value services. The services compared were among those identified as unnecessary by national organizations of medical specialists as part of the Choosing Wisely campaign.

The researchers found that four of the seven services they examined were provided at similar rates by Medicare and commercial market plans: cervical cancer screening over age 65; prescription opioid use for migraines; cardiac testing in asymptomatic patients; and frequent bone density scans. Medicare was less likely to pay for unnecessary imaging for back pain, but more likely to pay for vitamin D screening.

This finding might seem counterintuitive. Commercial market plans pay higher rates and confer higher profit margins, meaning there is more financial incentive for physicians to provide privately insured patients more of all types of care, whether low or high value.

But other results from the study suggest a more likely explanation: Doctors tend to treat all their patients similarly, regardless of who is paying the bill.

 “What kind of insurance you have does affect your access to health care,” said Carrie Colla, associate professor of the Dartmouth Institute for Health Policy & Clinical Practice and the lead author of the study. “But once you’re in front of the doctor, by and large you’re treated the same way as any other patient.”

One apparent exception found in the study involved the seventh service it examined: cardiac testing before low-risk, noncardiac surgery. This service was provided to 46 percent of Medicare beneficiaries and 26 percent of privately insured patients. The large difference could reflect the fact that cardiac problems are more prevalent among older people. So a doctor with equal concern for all her patients might test Medicare patients at a higher rate for that reason. Nonetheless, such testing is considered low value even for the Medicare population.

Another recent study, published in JAMA Internal Medicine, also found little relationship between insurance status and low-value care. The study found no difference in the rates at which seven of nine low-value services were provided to patients on Medicaid versus those with private coverage. Six were also provided at the same rates for uninsured and privately insured patients.

Moreover, the study found that physicians who see a higher proportion of patients on Medicaid provide the same rate of low- and high-value services for all their patients as other physicians do. This is an important finding because Medicaid pays doctors less than private plans do, raising concerns that higher-quality doctors would tend not to participate in the program.

“Despite concerns to the contrary, Medicaid patients don’t appear to be seeing lower-quality doctors,” said Dr. Michael Barnett, lead author of the study, a physician with the Brigham and Women’s Hospital and an assistant professor at the Harvard T.H. Chan School of Public Health. “Though raising the prices Medicaid pays doctors may increase physician participation, enhancing enrollees’ access to care, it isn’t likely to change the quality of care patients receive once they are in the doctor’s office.”

If insurance status doesn’t influence how much low-value care patients are being offered, what does? In part, it seems related to the history and organization of local health care markets. A big culprit, according to Ms. Colla’s study, is a market’s ratio of specialists, like cardiologists and orthopedists, to primary care physicians. In areas where there are relatively more specialists, there is also more low-value care. That’s not to say that specialists don’t provide valuable services — but it suggests that they tend to provide more low-value care as well.

In a way, this is good news — the medical system doesn’t seem to discriminate by insurance status. It also means that public programs appear to be relatively cost-efficient, spending less than private payers for care of similar quality. That bodes well for Democrats’ proposals to expand Medicare or Medicaid.

But the bad news is that the study results imply that the value of care is hard to influence by adjusting prices. In a normal market, paying less for something would send a message of its low value, prompting people to provide less of it. The fact that price apparently does not influence doctors’ decisions is just another way in which health care does not seem to function like other markets.

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