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Costs of Medicare/Medicaid Have Outpaced Other Health Costs by 1/3 Since 1970

7:35 AM, Jul 29, 2009 • By JEFFREY H. ANDERSON
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Ezra Klein has posted a blog criticizing the claim (made by Bill Kristol on the Daily Show Monday night) that the costs of government-run health care have greatly outpaced other health costs. But Klein is mistaken.

Advocates of ObamaCare like to rely on studies comparing the cost-increases of government-run care with the cost-increases of private insurance. But such studies completely ignore private out-of-pocket costs. They ignore the fact that out-of-pocket costs have gone from being 62 percent of the private market in 1970 to just 26 percent today -- and that private insurance correspondingly covers almost twice as much care today as it did back then (74 percent compared to just 38 percent). They completely ignore a profound shift in the private market and draw conclusions as if that shift had never occurred. It's a lot like looking at LP and CD sales, but ignoring MP3s, and concluding that Americans are no longer as fond of music.

If you look at all of private care, and don't just cherry-pick a select part of it, the picture is quite clear. As my study for the Pacific Research Institute shows, since 1970, the costs of Medicare and Medicaid have each risen one-third more, per patient, than the combined costs of all other health care in America -- the vast majority of which is purchased privately. Medicaid's costs have risen 35 percent more, and Medicare's 34 percent more, per patient, than the combined costs of all other health care nationwide.

The costs of the two flagship government-run health-care programs have also outpaced all other nationwide health costs since 1980, 1990, and, in Medicare's case, 2000. (Medicaid's costs haven't risen much since 2000, as billions of dollars have been shifted from Medicaid to SCHIP.)

Moreover, my study is quite generous to Medicare and Medicaid in a variety of ways. It counts the Medicare prescription-drug benefit among the costs of private care rather than among the costs of Medicare, it doesn't adjust for the cost-shifting from Medicaid to SCHIP, and it counts all care that is purchased privately by Medicare and Medicaid beneficiaries (including Medigap insurance and Medicare copayments) among the costs of private care without counting those who receive it among the recipients of private care. (Because Medicare's and Medicaid's enrollments have increased disproportionately over time, this magnifies private care's per-patient cost-increases.)

Despite all of these advantages, on a per-patient basis, for every $3 that all other U.S. health-care costs have increased since 1970, Medicare's and Medicaid's costs have each risen more than $4. Klein and Co. can only claim otherwise by completely ignoring a major chunk of the private market.Klein also criticizes Kristol for his exchange with Daily Show host Jon Stewart over military health care. My wife is a young officer in the military. My dad was a career officer. Military health care is not first-class. It's more or less what you would get if you were to mate first-class health care with the DMV.

At my wife's current base, I've gone to the doctor twice. Neither time did I get to see an actual doctor. The first time, I saw a major, the second time a lieutenant -- both nurse-practitioners.

As I waited for my first appointment, I saw my wife's friend Loren in the waiting area. We were both going to ask about getting an antihistamine for our allergies. The person she saw adamantly refused to give her anything that she couldn't have purchased over-the-counter. I walked out with 9 different bottles of pills or inhalers of various sorts. My guy believed in aggressive medicine. When I asked whether the onslaught of medicines he proposed was really necessary, he looked at me, paused for a split second, and then replied (with complete seriousness) that while "some docs" like to take a more incremental approach, we'd tried that approach in Vietnam, and "we lost the damn war!" (One couldn't make this up.)

In this one example, we see both sides of government-run health care: waste and rationing. Because no one has to pay for care directly, there's no incentive to pursue good value. I thought that what my non-doc planned to prescribe sounded like a ridiculous waste, and I had no intention of poisoning my system with most of it. But I figured that the only way I was going to know which of the medications I should actually take was to keep my mouth shut, take my bounty home, and do some online research. However, because something has to be done to keep costs down, rationing inevitably follows -- as Loren learned. So you end up with a mix of care that you wouldn't pay for yourself, and care that you cannot get even if you would have been willing to pay for it yourself.

One last anecdote about the military's first-class-meets-DMV-style medicine that the rest of the country will get soon enough, should ObamaCare pass. Three years ago, my wife (not then my wife) had salmonella poisoning. She went to the military clinic, and the nurse-practitioner ran inadequate tests and gave her a useless antibiotic to tide her over. When her tests were inconclusive, she returned for a second visit days later for more tests. In response to her complaint of severe dehydration, and of having lost more than one-seventh of her body weight, the technician asked if she had been given an IV, but did not offer one after my future wife replied that she had not. After ten days of prolonged suffering with severe food poisoning, she finally received the diagnosis and treatment she needed, while never once seeing an actual doctor.

In short, government-run health care is the ticket to higher costs, less choice, and worse care.