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Bush Plan to Privatize Medicare Could Increase Costs

  • May 30th, 2003

President Bush has proposed increasing the role of private health plans in Medicare by encouraging enrollees to choose a system under which patients must use doctors and other providers from a list created by private health plans. But new data suggests that shifting Medicare recipients to such arrangements, called preferred provider organizations (PPOs), could substantially increase Medicare costs because the fees paid to providers by private health plans generally are higher than those paid by fee-for-service Medicare, according to an article in the New York Times.

The new information "has the potential to reshape the debate over the future of Medicare," says the Times.

A study commissioned by the government's own Medicare Payment Advisory Commission collected data from 33 health plans covering 31 million people. The study found that private health plan fees are about 15 percent higher than Medicare fees. This is so in part because private plans usually have to pay doctors more than Medicare to get enough physicians to participate in their networks.

In addition, administrative costs of private plans are much higher, often about 15 to 16 percent of revenues, compared to Medicare's 3 percent administrative costs. For example, private plans incur expenses for advertising and lobbying.

To read the article in the New York Times, go to: http://www.nytimes.com/2003/05/06/politics/06MEDI.html (Free registration required and article may be only temporarily available.)

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Last Modified: 05/30/2003

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