Congressional Budget Office

April 5, 2011

A private health insurance plan covering the standardized benefit would, CBO estimates, be more expensive currently than traditional Medicare. Both administrative costs (including profits) and payment rates to providers are higher for private plans than for Medicare. Those higher costs would be offset partly but not fully by savings from lower utilization stemming from two sources. First, private health insurers would probably impose greater utilization management than occurs in Medicare. Second, private plans might restrict enrollees’ ability to purchase supplemental insurance plans; enrollees would thus face higher out-of-pocket costs than they do in Medicare, and that increased cost sharing would encourage lower utilization. On net, for a typical 65-year-old in 2011, CBO estimates that average spending in traditional Medicare will be 89 percent of (that is, 11 percent less than) the spending that would occur if that same package of benefits was purchased from a private insurer.

http://www.cbo.gov/ftpdocs/121xx/doc12128/04-05-Ryan_Letter.pdf

Comment:

By Don McCanne, MD

House Budget Chair Paul Ryan’s proposal for Medicare has two primary goals. It would end Medicare as a government program and shift it to private insurers, and it would reduce the government’s payments to the program, shifting more of the costs to the Medicare beneficiaries.

This analysis by the Congressional Budget Office demonstrates that not only would the Medicare beneficiaries receive less care and have to pay more for it, but in the first year alone, the total costs would be significantly higher using private plans than it would be using the traditional Medicare program. Medicare is able to provide health care for 11 percent less than the total costs through private insurers.

In a way we can thank Congressman Ryan for showing us once again why we should abandon the private insurers and adopt an improved Medicare program that covers everyone.