Five Reasons Why Privatizing Medicare is a Bad Idea

We now interrupt our regularly scheduled programming to bring you a wonky blog post. 

So a few people out there are suggesting that we privatize Medicare and give out vouchers for recipients to purchase their own insurance on the open market. This is such a bad idea for so many reasons, and shows that some people simply don’t understand how Medicare works. Here are my top five. . .

1. Medicare is the closest thing we have to a single payer system. Medicare covers one in seven Americans, 97 percent of those 65 and older., or 49 million Americans. In 2030, the number of Americans covered is expected to nearly double, with one out of five Americans covered.

This huge cohort of individuals provides enormous opportunities to test  new reimbursement and quality initiatives with a large cohort. In fact, Medicare is leading the country in many of these initiatives, including accountable care organizations, pay-for-performance options, DRGs for hospital reimbursement (which reimburses based on diagnosis, not on how many aspirin you get), and financial penalties for hospitals if patients with pneumonia, heart failure, or heart attacks are readmitted within 30 days. Those penalties are expanded to vascular surgeries/procedures in 2015.

The commercial insurance market waits to see what works and what doesn’t, the follows suit. If we break up this large, relatively homogenous cohort that is easy to track, we make these kind of initiatives more difficult to implement.

2. Most healthcare providers have to take Medicare. They have no choice if they want to stay in business since people 65 and older use the most medical services. That means a take-it-or-leave it approach to reimbursement. And they are not allowed to balance bill recipients. I know that Medicare reimbursement rates are low; but this does help control costs somewhat. In addition the Affordable Care Act creates a board with the power to cut payments (not benefits or the amount or type of care provided) if Medicare costs rise about certain limits. Can’t do that with private insurance!

3. Medicare recipients already have choice. They have choice in whether they choose traditional Medicare or a Medicare Advantage plan, which is run by private insurers. Yet 75 percent choose traditional Medicare. In addition, a set list of benefits is guaranteed to Medicare recipients; will this continue on the open market?

4. Increases in healthcare spending rose at nearly three times the inflation rate in 2010 (Figure 1). So if we tie payments for premiums to the inflation rate, private insurers will likely balk; how can they continue to pay for medical care with premiums that don’t come close to addressing increasing medical costs? They can’t so they’ll raise the cost of policies to an amount that will likely exceed the voucher amount.

Also consider that half of all people on Medicare have incomes below $22,000. I doubt they have the bucks to make up the difference between their government-provided voucher and what the insurance company charges.

5. There is no evidence in the employer-provided, commercial insurance world that ‘competition’ holds down costs.  Neither premium costs nor medical expenses (see number 4 above). Last year, employers spent 5.5 percent more on healthcare costs than they did in 2010, far higher than the inflation rate. In the five years previous, their costs rose 9 percent a year.

To read more facts about what’s going on with Medicare–and what may occur in the near future–visit

Ok, I’m done being wonky. We now return you to your regularly scheduled programming.

Want to learn more about the healthcare system and the Affordable Care Act? Invite me to come speak before your company or organization on “Healthcare for Dummies.” I promise it won’t be boring!



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