Princeton health economist Uwe Reinhardt this week posted a very informative and entertaining (no surprise there) response to Sally Pipes’ claim that Employer Health Insurance: A Bargain Compared to Government-Sponsored Coverage (read: Medicare and Medicaid). It’s hard to disagree with most of what Prof. Reinhardt has offered in his rebuttal. But at the risk of having my own post become a “platform for a homework assignment in undergraduate health-economics courses,” let me suggest that Sally Pipes may actually be right for reasons she never even addressed.
Comparing the cost of employer-sponsored insurance to the cost of either Medicare or Medicaid is a completely stacked comparison even if we fully adjust for every iota of age and health status differences between these three populations and use an apples-to-apples comparison of plans having the identical benefits and actuarial value. The premium cost for employer coverage essentially embeds the fully loaded cost to society of providing such coverage, inclusive of profits, insurance company tax payments and administrative costs. In contrast, the Medicare and Medicaid cost figures used by Prof. Reinhardt include only a portion of the administrative costs incurred by both programs and none of the hidden costs of taxation known as excess burden or dead weight losses.
Once these hidden costs are taken into account, even Medicaid (whose provider payment rates are so abysmal that one third of primary care physicians refuse to see Medicaid patients) costs more than employer-sponsored coverage.
Read the full article here.
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