Public Health Plans More Economical than Private Counterparts

The latest Associated Press report on health care costs contains some hidden gems. The headline is that health spending increased to $2.1 trillion in 2006, an average of $7,021 per person and 16.1 percent of the economy.

The first hidden gem relates to the ability of public plans to use their bulk buying power to negotiate lower drug prices. Medicaid does it. Medicare is legally prohibited:

"[U]nder the drug benefit, many of the poorest beneficiaries were moved from Medicaid into Medicare, where private plans administer the drug benefit. Those private plans failed to negotiate discounts as large as those that the states got. Officials said the discounts drug manufacturers were required to give states typically lowered costs by about 30 percent. Meanwhile, the private plans typically negotiated discounts of 5 percent to 10 percent."

The second gem is about the cost of Medicare compared to private plans. It's cheaper:

"Medicare economists said the increase [in spending] occurred because millions of people left traditional Medicare to enroll in private plans subsidized by the government. Medicare's economists said they could not say whether such a transfer led to greater health spending overall in the U.S. But they did note that the government spends about $10,133 per enrollee in the private plans versus about $9,538 per enrollee in traditional Medicare."