AEI Health Policy Outlook: Lessons for Medicare from Private Health Insurers

Thought you might be interested in the latest AEI Health Policy Outlook on geographic variations in efficient health care use and spending by AEI visiting scholars Darius Lakdawalla and Tomas Philipson.

A large body of evidence suggests that Medicare currently does not deploy health care resources efficiently. In this new study, Lakdawalla, Philipson and their coauthor Dana Goldman compare Medicare and private-sector health insurers spending and use. They find that variations in service use across regions are smaller for the private sector than for Medicare, suggesting better management in the private sector.

Among the key points of this Outlook:

  • The authors' research upends conventional wisdom, and the Dartmouth Atlas project in particular. Dartmouth researchers used Medicare data to document considerable variation in health care use and spending across the United States, but found little corresponding difference in health outcomes. Simply put, they concluded that more care is not better care, and that those receiving a greater number of services could actually be harmed. This line of reasoning led many to conclude (incorrectly per Lakdawalla, Philipson and Goldman) that to lower costs and fix what ails the health care system, high-use areas like Miami ought to model themselves after low-use areas like Minneapolis.

  • The authors find that Medicare seems more likely than private insurers to attempt to restrain spending by holding down prices for care rather than by managing health care resources.

  • Lakdawalla, Philipson and Goldman conclude that Medicare should look to the private sector for a model, and that instead of holding down prices, a more efficient use of resources in Medicare could help reduce geographic variation, limit costs, and improve health care outcomes.

The AEI Health Policy Outlook is available here: http://www.aei.org/outlook/100975.

Darius Lakdawalla and Tomas Philipson are available for interview and can be contacted at darius.lakdawalla@aei.org and tomas.philipson@aei.org. For additional media inquiries, please contact Veronique Rodman at vrodman@aei.org (202.862.4871) or Sara Huneke at sara.huneke@aei.org (202.862.4870).

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