Is Private More Efficient Than Public?

There is a belief that private industry can do things more efficiently than the public sector, but is this accurate? When it comes to health insurance, this isn’t so.


recent study published in Health Affairs looked at the growth in health spending from 2007 to 2014 for people insured through private employer plans versus those insured by original Medicare. It found that health spending per enrollee rose by 16.9% for those in private employer plans while spending per enrollee for those in original Medicare declined by 1.2%. 


Another article in Health Affairs that compared private plans with Medicare over the period of 1997 to 2009 had similar findings: spending for private plans rose at a steeper rate than for Medicare. 
Keep in mind that people on employer plans tend to be healthier than those in original Medicare, who are seniors or disabled, especially since the private Medicare Advantage plans cherry pick the healthiest seniors and leave those with the most health needs in original Medicare.


Part of the reason for the difference is that Medicare has the power to set reimbursement rates as a large system while the various private employer plans have to negotiate rates with all of the various providers in their region. In fact, in the private sector, there is no rational basis for how reimbursement rates are set. It is determined in many cases by insurance company monopolies negotiating with health provider monopolies and the most powerful wins. 


We have entered a medical arms race in the private sector that is driving healthcare spending up at an increasing rate. A public system, national improved Medicare for All, would end that and save money by covering everyone in our most efficient system, original Medicare.