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Medicare, Medicaid Best Private Plans for Containing Health Costs

Medicare and Medicaid showed slower health spending growth per enrollee than private health insurance.

Medicare, Medicaid best private insurance plans in containing health costs

Source: Thinkstock

By Jessica Kent

- Medicare and Medicaid contain per enrollee health spending growth better than private insurance which likely indicates that recent policies will be key to sustaining this control, revealed a report conducted by the Urban Institute and funded by the Robert Wood Johnson Foundation.

Recent estimates show that national health expenditures (NHE) have increased by just 3.9 percent in 2017 — slow when compared to historic growth rates.

However, CMS actuaries expect annual NHE to grow over the next decade as spending by public payers increases more than private insurers, though CMS hasn’t yet incorporated the 2017 spending estimates into projections.

“Underlying these projections are assumptions about spending growth by major payers including Medicare, Medicaid, and private health insurance,” the report said.

“The projections indicate much faster annual spending growth among public payers from 2017 to 2026, averaging 7.6 percent for Medicare and 6.2 percent for Medicaid. Over the same period, private health insurance spending would grow, on average, by only 4.6 percent annually.”

Researchers set out to better understand recent health spending patterns by payers, and what these patterns indicate about the likely trajectory of healthcare spending in the future. The team examined health spending growth for Medicare, Medicaid, and private health insurance from 2006 to 2017, as well as spending and enrollment projections for each major payer from 2017 to 2026.  

Between 2006 and 2017, the results showed that Medicaid spending grew the fastest, averaging 6.0 percent annually, while Medicare averaged 5.2 percent and private health insurance averaged 4.4 percent annually. However, the researchers noted that these averages do not distinguish between spending growth from enrollment increases, and growth related to other factors.

Over this period, Medicaid experienced the highest rate of enrollment growth, at 4.3 percent annually. Medicare also showed an increase in enrollment, at an average of 2.8 percent annually. In contrast, private health insurance enrollment stayed relatively flat.

“After accounting for the enrollment growth in these programs, Medicare and Medicaid have experienced much slower growth in spending per enrollee compared with private health insurance,” the report stated.

“From 2006 to 2017, spending per enrollee for Medicare and Medicaid grew by annual averages of 2.4 percent and 1.6 percent, respectively, while private health insurance spending per enrollee grew at an average of 4.4 percent per year.”

Researchers found that over this period, private insurance saw rapid growth in hospital spending per enrollee, at 6.2 percent annually, as well as for nursing and home health services, which increased by 6.6 percent annually.

In contrast, Medicare saw an annual growth of just 1.2 percent for hospital spending per enrollee, and just 2.3 percent for nursing and home health services. Medicaid showed even lower rates of growth for these services, with hospital spending per enrollee growing at just 1.0 percent annually, and nursing and home health services spending increasing by 0.7 percent annually.

Although spending grew faster in both public programs than it did in private insurance between 2006 and 2017, the findings demonstrate that spending per enrollee grew slower in Medicare and Medicaid than it did in private insurance.

Despite these findings, CMS projects growth in spending per enrollee in Medicare and Medicaid to exceed growth in spending per enrollee in private insurance between 2017 and 2026, the report noted.

“While the detailed assumptions driving these projections are not reported, the estimates clearly suggest a belief that the slow growth in Medicare and Medicaid per enrollee spending from 2006 to 2017 will not continue over the next decade,” the researchers said.

“Unless there is a strong basis for anticipating a reversal of the ongoing trend over the last decade or more, however, these projections may well be an overestimate of growth in public program spending in the coming years.”

The researchers stated that spending patterns in Medicare and Medicaid could inform those of private insurance. The researchers said that while modest policy proposals could further improve cost containment in Medicare and Medicaid, the results indicate that these programs don’t need to be radically reformed.

“These programs appear to have been relatively successful at moderating spending growth compared to private insurance,” the report concluded.

“These patterns do not support drastic calls to restructure Medicare and Medicaid in order to slow national health spending growth, and may actually provide some support for efforts to expand public programs or borrow some of their cost containment strategies for use in the private sector.”


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