In this New York Times column, economics professor Uwe Reinhardt explains at some length why privatization of public health care programs, such as Rep. Paul Ryan's plan to privatize medicare, is unlikely to save money. To get a gauge on the cost of private insurance, Reinhardt reviews the annual Millman Medical Index, whose virtue, Reinhardt says, is that it takes a comprehensive approach to private insurance costs, looking not just at employer- and employee-paid premiums, but at the significant out-of-pocket costs imposed on people "insured" under private insurance plans. The numbers are astounding: The cost of private insurance have well more than doubled in the past decade. Even more astounding are the actually numbers. The cost to a family of four in premiums plus other costs is now around $19,400. That's the average. And medical costs of privately insured people have been rising recently at about 8%, while employee compensation has been going up at a rate of 3%. That doesn't sound sustaintable, does it? Among other reasons, that's why Gregg Bloche has noted that we are kidding ourselves if we think we don't have to ration (and don't already ration) health care. (For more on this topic, see Bloche's new book, The Hippocratic Myth, which takes up the issue in considerable detail.)
You will need to read Reinhardt's column in full to see why he thinks privatization provides no cost savings over public health programs. As noted at the top, he does acknowledges that privatization may change who pays. He concludes:
The available data do not lend credence to the prediction sometimes made in connection with the Ryan plan for Medicare that private insurers will be able to control the overall health spending of elderly Americans any better than traditional Medicare has been able to. A complete privatization of Medicare will have to be rationalized on other grounds — either with appeal to superior coordination of care or simply on the argument that government must by statute shrink the taxpayers’ obligation for the health-care cost of the elderly by shifting those costs to the elderly themselves.
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