Medicare is a federal health insurance program provided to specific individuals in the United States. Funding for the care is subsidized through a small tax that comes out of worker paychecks each month. People who are self-employed pay their share and the employer share of this cost. Anyone who is 65 or older qualifies for it, as well as certain people younger than this age threshold if they have a disability.
Individuals with end-stage renal disease, which is permanent kidney failure requiring a transplant or dialysis, also qualify for services. There are different parts of Medicare that help to provide care in specific areas.
Part A covers inpatient hospital stays, hospice care, and skilled nursing facility coverage. Part B covers outpatient care, medical supplies, preventive services, and some doctor visits. Part D is coverage for prescription drugs that gets added to some cost plans, private fee-for-service coverage, and medical savings account plans. You can also add the latter option to your original Medicare.
The cost of administering the program in the public sector is enormous. Medicare spending in 2017 was $705.9 billion, representing 20% of national health expenditures. Medicaid spending adds another $600 billion to that cost. That’s why the pros and cons of privatizing this system are under consideration.
List of the Pros of Privatizing Medicare
1. It could put pressure on the upward cost spiral of Medicare.
Medicare is already cheaper than private insurance. It is also better at cost controls. Between 2010-2015, the system cut total spending by 50% while reducing per capita spending from 7.4% to 1.4% compared to figures from 2000-20009. PHI per capita spending decreased as well, but from 7.2% to 3%. The goal of the privatization effort would be to create pressure on the industry to hold down the current rapid rise in medical costs. Since seniors could end up paying a much higher percentage over time, the ethics of charging more, along with added competition, could make expenses remain affordable.
2. Privatization can be a useful way to fund critical needs.
Medicare has a massive infrastructure that requires ongoing management and funding for it to be successful. Trying to pay for upgrades to the system is a daunting challenge financially and legislatively. By privatizing the system, the revenues that come from the work can go toward improvements that can make it a useful program for future generations. It can unlock capital for investments that promote growth, ease bottlenecking, and improve the quality of care that individuals receive when visiting their doctor.
3. It could provide an immediate income resource for the government.
The act of privatization is popular in government circles because it creates an immediate source of revenue. As people start living longer, they have spending that stretches into retirement for longer periods. The cost of medical care can be significant in a person’s later years as well. Many families are having fewer children as well, if they decide to even have any in the first place. The ratio of people receiving benefits to the workers paying for them is a gap that continues to steadily grow.
Privatizing the system helps aging societies manage the fiscal crunch by giving the government more revenues while still having the option to collect taxes. Budgets can still be met without a sacrifice to services.
4. Medicare would become an investment vehicle.
Investors do not look at government programs as a safe investment option unless the economy is in shambles and loss prevention is more important than wealth gains. Medicare only receives attention when nothing else is available. Privatizing the system would help to change that. Companies would have incentives to create innovative products or services at affordable prices because there would be a financial return for them to enjoy. This advantage could lead to new discoveries that could help people live even longer, more fulfilling lives than they already do today.
5. It would create more service openings in the medical field.
Doctors who agree to accept the rates set by Medicare without complaint are given the status of being a participating provider. They accept the program’s reimbursements for all covered services, for all patients, and then bill Medicare directly for their services rendered. 93% of non-pediatric primary care physicians were listed as participating providers as of 2015 figures, but only 72% of them were accepting new patients. Instead of using a search tool in an attempt to find a doctor, privatizing the system would let doctors connect with patients in ways that are beneficial to their health.
6. There would still be an opt-out option for doctors.
About 1% of eligible physicians currently opt out of the Medicare system entirely as it stands today. That means they will not accept reimbursements from the plan as payment-in-full for any services given to any Medicare patient. Individuals can still receive care from one of these doctors, but it is their responsibility to pay the entire bill. There is no reimbursement given to the patient either, which means the doctor can charge whatever they want. Out of the number of doctors who have taken this action 42% of them are psychiatrists.
For the 3,700 doctors who fall into this category, privatization would still provide the opt-out process. That would allow you to maximize your earning potential while the rest of the system becomes more efficient.
7. It is a politically expedient solution.
Another benefit to consider with the privatization of Medicare is that the executives and controllers of the services would not be up for re-election every 2-6 years. Although there is a response necessary to stakeholders in such a system, a private operator could do what politicians are unable or unwilling to do with the program. That could mean raising copays, increasing percentage shares of a payment, and other decisions that can raise the amount of revenue that this coverage generates each year. There are concerns that Medicare is insolvent, so moving in this direction would provide a defensive layer against a complete collapse of the system.
8. There are relatively few alternatives to consider.
The process of privatization is not kept a secret from the public. There tends to be more transparency instead of less because there aren’t political negotiations happening behind closed doors. Without this benefit in place, the government may need to borrow more money to fund needed services, raise taxes on the general public, or start spending less on care needs. There might even be demands for cost concessions from doctors providing care so that the government can manage its assets more efficiently.
9. Private companies are more efficient operators.
Most of the empirical evidence that examines the private vs. public debate supports the claims that privatization creates more efficient operators than a government entity. There are several reasons why this advantage is possible, including the existence of management incentives that get tied to individual performance. Private companies can fund capital investments more effectively, use more operating leverage, and introduce proprietary tech that can help patients receive better care.
Medicare privatization could also benefit in this category by de-politicizing the operational decisions and pricing that occurs. There is no political affiliation – only the desire to turn a profit while providing the best possible levels of care.
10. It would create even more leverage for price negotiation.
Medicare succeeds at creating lower costs for patients because it leverages its considerable size to negotiate aggressively. By privatizing this system, it would give companies the same power while operating under a modicum of government oversight. That power could go toward other aspects of care too, such as lowering the cost of prescription drugs. Private-pay insurers offer significantly higher compensation levels to hospitals and doctors because they don’t have this tool in their toolbox. With this advantage, it would be something that they could achieve quite easily.
11. The provision of care would not change with privatization.
You would still get to visit your same doctor if the government decides to privatize Medicare because the coverage wouldn’t change. Only the administrator of the program would be different. There might be some physicians who decide to drop out of this new network over time for various reasons, but that happens under the current system as well. If anything, most insurers would prefer a direct transfer instead of using an idea like vouchers because it would play to their efficiencies instead of the need to cut costs.
List of the Cons of Privatizing Medicare
1. It would eliminate the percentage coverage of Medicare.
The privatization of Medicare would likely move to change how much money people receive through this coverage for the care they need. Under the current structure of the system, consumers pay 30% of their costs, and then the government picks up the rest of the tab. Private agencies would likely use the premium support model for administering the system, which would give seniors a fixed amount to purchase insurance instead. The cap would rise each year based on corporate policy instead of adjusting for medical inflation.
2. It could raise the eligibility age.
When the Republicans started thinking about Medicare changes in 2017, one of their ideas was to raise the eligibility age from 65 to 67. Taking that action would cause numerous families to start shouldering more of their healthcare burdens than what they were promised by the government before retirement. This move could save billions of dollars each year, which would help to create more immediate profits if the system were privatized. It is a myth that this coverage is bankrupt or unviable as a solution. What politicians want to do is eliminate waste and cut costs.
3. Privatization puts constraints on future opportunities.
Privatizing Medicare would place the public assets into private control for a specific time, which may need to be indefinite because of the scope of this coverage. There is a lot that can change over the courage of 50 years. For some people, life can go in a crazy different direction in less than one year. By contracting this coverage out to companies, the public loses the little bit of control that it does have. It could also force agencies to cling to old contracts that are no longer reflective of what the public needs.
4. There are social implications to consider with Medicare privatization.
The primary benefit of privatizing Medicare lies in the efficiencies that are present in the private sector. There are powerful incentives for those seeking profits to reduce costs while increasing revenues. It is a practice that can have negative social consequences since the provider must take actions against a vulnerable societal demographic. Efficiency comes by cutting the services that lose money and purging unprofitable customers. That means there could be fewer care options available to the most vulnerable populations in each community.
5. It could stop people from receiving the care they need.
When people encounter higher fees for the services they require, then their decisions become highly elastic. Research confirms that a small increase in costs for tolls can change human behavior to look for alternative routes that don’t cost extra – even if it takes significantly longer to reach the intended destination. The same problem would occur when privatizing Medicare, but it would involve people deciding not to go to the doctor because they see skipping an appointment as a cost-savings measure.
44% of Americans are already skipping visits to the doctor because of the cost of an appointment, even when they are sick or injured in some way. 40% are skipping recommended medical tests. Without the safety net of Medicare covering a majority of expenses, the senior population would start taking this action more often as well.
6. Privatization could work to limit competition.
The nature of the free-market system is to maximize profits through a limitation of the competitors in your industry. There might not be an incentive to expand care because scarcity in the medical field could lead to greater profits. If the per capita revenues stay high, then the amount of waiting time for each patient doesn’t matter to the company responsible for providing care. Then the firm responsible for distributing Medicare could invest in other services, such as telehealth, to limit wait times, improve patient appointment numbers, and make even more money.
This disadvantage happens in every segment of the economy. The British Airport Authority had a disincentive to expand capacity because it could boost profits through added congestion. Then they invested heavily in retail so that the stranded travelers waiting for a flight could start shopping.
7. Future generations could be robbed of needed services.
Future generations can benefit from the act of privatization if the investments go toward things that can increase prosperity and productivity in the future. If the cash inflows are used to pay for current expenses, squandered research and development, or failed expansion efforts, then it forces patients to pay now for bills that they would have normally paid in the future with their funds. This disadvantage creates a transfer of wealth that rewards current citizens by taking away opportunities from future ones.
8. It may not result in a fair-value deal.
When public assets get put into private hands, then the citizens must receive a fair-value deal for what transfers over. It all depends on the price that the government can receive for its Medicare infrastructure. Elected officials have incentives to accept poor deals if the flow of cash can strengthen their position for a future election. The only way to avoid this disadvantage is the shorten the time it takes to create a deal so that any mistakes over the valuation of the program are minimized.
9. There could be a lack of public input on the matter.
Whether there is a real or perceived lack of public input about the privatization of Medicare, the feelings of being left out of the solution can leave people feeling disaffected. The government is supposed to be the voice of the people. The average citizen should feel like they have an opportunity to share an opinion or perspective at any step of the transfer process. If anyone doesn’t get that chance to express themselves, then it will create higher levels of distrust, consternation, or outright rebellion if it seems like the actions went against the public will.
The process of transference matters. Every step of Medicare privatization will need to be inclusive, transparent, and as fair as possible. If the government takes the approach of having the ends justifying the means, then there is no way to measure success. Poor processes with this disadvantage can sink a deal even if it makes sense.
10. It would put us back to the point where we were when Medicare was created.
“Consider this,” writes Columnist Wendell Potter for the Center for Public Integrity, “one of the reasons Medicare was created in the first place was because insurance companies really didn’t want old people as customers. To discourage older folks from even applying, the insurers adopted the practice of charging people 5-10 times as much as younger people for the exact same policy.”
If someone had a pre-existing condition without prior coverage, then you weren’t going to get any insurance at all. With the growing number of seniors being uninsured, the government stepped in to correct the problem. Privatizing the system now would put us right back there unless there were ways to stipulate specific care requirements. Even with recent changes to health care, insurers can still charge older people 3 times more than younger people for the same policy.
Verdict of the Pros and Cons of Privatizing Medicare
The pros and cons of privatizing Medicare offer risks that would be printed on both sides of the prescription label. There is nothing to suggest that the government shouldn’t consider this option because of the financial benefits that would occur. It is also critical for us to consider what improper usage would do to the system.
There will always be unwanted side effects that develop whenever significant changes occur. We must look to see if the benefits outweigh the disadvantages to protect the public interest.
This journey would begin when a good contract is written, and then monitored, when Medicare goes private. Legislators must demand fair pricing for any asset transfers that occur. There must also be a reliable process in place that allows patients and families to receive the care they need. Without these items present, the privatization effort might fail before it gets a chance to succeed.
Blog Post Author Credentials
Louise Gaille is the author of this post. She received her B.A. in Economics from the University of Washington. In addition to being a seasoned writer, Louise has almost a decade of experience in Banking and Finance. If you have any suggestions on how to make this post better, then go here to contact our team.