Medicare Premiums for 2012

An article was published in the New York Times last week indicating that premiums for Medicare Part B would be increasing by less than expected next year.  In fact, the premiums for Part B coverage would be going up by only $3.50 to $99.90 rather than the additional $6.70 up to an expected total of $106.60.  The article states that "Administration officials said the smaller increase showed their prudent management of the program..."  All I can say to that is maybe.

What else could be the cause?

Well, basic human behavior.  Premiums are a function of the probability of something happening to trigger a claim and the amount of the claim.  The amount of the claim the result of a basic demand relationship.  At the out of pocket price faced by individuals, what is the quantity of a particular service that they will choose to consumer to maximize their utility.  That is a function of preferences, health status, and income.

As you can see, a lot of things affect the premium other than just the cost saving plans put in place by the administration.  Without more data from a rigorous analysis it would be impossible to determine whether the cost saving measures imposed by the administration are truly the cause of smaller increases than expected.

And, even if they are the cause of smaller increases, we have to ask "what, if anything, is being given up?"  If we were to perform a cost-effectiveness analysis of the administrations plans would we find that we are spending less while getting equal or better health outcomes?  Or would we find, in contrast, that the health outcomes are worse?  And if they were worse, would we then find that they were just a little worse?  And, if we contrast this with the money saved (or at least not as much being spent) it would be acceptable.  Or would we find that the health care outcomes are sufficiently worse than expected that we would not feel we are getting a good deal on the savings.

In other words--what is the true root of the savings and is the health of our Medicare population suffering or not?  I would want a lot more data before concluding that what seems like sensible and favorable results of policy are as rosy as this article suggests is possible.