How Medicare Influences Private Payment

This is from an NBER Working Paper:

On average, a $1 change in Medicare’s relative payments results in a $1.30 change in private payments. We find that Medicare similarly moves the level of private payments when it alters fees across the board. Medicare thus strongly influences both relative valuations and aggregate expenditures on physicians’ services. We show further that Medicare’s price transmission is strongest in markets with large numbers of physicians and low provider consolidation.

HT to Tyler Cowen, who draws implications.

Comments (13)

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  1. Mike says:

    Is it fair for Medicare to have such a strong bargaining power? Much less, be able to compete against private insurers?

  2. Buster says:

    When there is one huge payer, that payer has tremendous power to dictate prices. That is the central premise behind a Single-Payer national health care system. When there is a big government payer, the commercial payers can shadow the price leader. Commercial payers may have to pay more in most cases, but they can adjust to changes in Medicare prices.

  3. Rutledge says:

    Red Flag:

    “We show further that Medicare’s price transmission is strongest in markets with large numbers of physicians…”

    In a competitive market place, this high number physicians should result in increased competition to drive down what they charge for their services. Unfortunately, this system is so “messed up” that this is not happening.

  4. JD says:

    Medicare has too much power as a buyer in the market. Not only are we providing Medicare for people, we are also paying the increased prices that the added demand creates. Unfortunately, this is the inevitable result of free coverage, the rest of us get hammered.

    • Dewaine says:

      Right, those costs are being passed onto us. The more “free” we make health care, the more burdensome it will be on healthy and productive.

    • Erik says:

      Medicare part “A” is free, not Part “B”. Do you know the difference between the two?

  5. Crawford says:

    Some say Obamacare may double healthcare cost. Let’s hope that doesn’t mean an even larger increase for those who are privately insured.

    http://healthblog.ncpa.org/obamacare-may-be-doubling-the-cost-of-health-insurance-but-its-hard-to-verify-that-3/

  6. Salveo Andaman Noni says:

    May be its not fare …