Government Care Costs More

The testimony by Congressional Budget Office chief Douglas Elmendorf that the health-care legislation in Congress “significantly expands” costs shocked Capitol Hill. Yet the evidence shows that government-run care has always been more costly than private-sector care.

In claiming that the solution to skyrocketing health costs is more government-run care, President Obama has relied on a myth — the belief that Medicare and Medicaid have restrained the growth in health expenses, relative to private care.

My new study, published by the Pacific Research Institute, shows that — across four decades — the costs of government-run health care have risen far more than the costs of private care.

My study compares the cost increases of Medicare and Medicaid with those of all other health care in the United States. The key finding: Since 1970, Medicare and Medicaid’s costs have 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.

Since 1970, Medicare and Medicaid’s combined per-patient costs have risen from $344 to $8,955, while the combined per-patient costs of all other US health care have risen from $364 to $7,119.

Medicare and Medicaid used to cost $20 less per patient than other care. Now they cost $1,836 more. (And that’s even without the Medicare prescription-drug benefit.)

In fact, if the costs of Medicare and Medicaid had risen only as much as the costs of all other health care in America, then, instead of costing a combined $807 billion last year, they would’ve cost a combined $606 billion. That savings of $201 billion would have amounted to more than $1,750 per American household last year alone. These conclusions are true despite very generous treatment of Medicare and Medicaid. My analysis counts all Medicare prescription-drug expenditures as part of privately purchased care, rather than as part of Medicare. It doesn’t adjust for billions of dollars in cost-shifting from Medicaid to the SCHIP program. And it counts health care purchased privately by Medicaid and Medicare patients (including Medicare co-payments and Medigap insurance) among the costs of private care, without counting those patients among the recipients of private care — thereby magnifying private care’s per-patient costs.

Despite such generous treatment, since 1970, Medicaid’s per-patient costs have risen 35 percent more, and Medicare’s 34 percent more, than all other health care in America.

President Obama says we must expand government-run health care to contain costs and that we don’t have a minute to lose. But nearly 40 years of evidence shows that government-run care has succeeded only in raising costs.

During an economic downturn in which we are already running higher budget deficits than at the height of the Great Depression (even as a percentage of our gross domestic product), wishful thinking and empty rhetoric shouldn’t be allowed to trump empirical evidence.

In truth, there’s only one reliable pursuer of value in American health care: the American consumer. If Congress and the president are serious about improving our nation’s health care, they should end the tax discrimination against the uninsured — that is, allow others to purchase care with pre-tax dollars in the way that we now permit only for those with employer-provided insurance. They should promote a more vibrant private market with greater competition across state lines, greater consumer freedom and greater incentives for consumers to pursue value. These are the changes we need.

The empirical evidence is in, and the verdict could hardly be plainer: Government-run health care limits choice and is more expensive. Privately purchased care offers choice and is more affordable.

Only the federal government could struggle to choose between these two alternatives.

— Jeffrey H. Anderson is a senior fellow in health care studies at the Pacific Research Institute.