Medicare Deform

Gaming the system

In 2008 researchers at Dartmouth University showed that Medicare spending varied significantly between regions, even when controlling for external factors. Many regions, they concluded, were larded with wasteful spending.

The following year, the Obama administration argued that if the same patterns held true for other health populations, such as the privately insured, it should be possible to cut the country's total medical spending by 30 percent. This notion formed the basis for many of the insurance regulations included in ObamaCare.

But new evidence suggests the regional variation found in Medicare may not exist in private insurance. According to a paper published in the December 2010 issue of the journal Health Affairs by Luisa Franzini of the University of Texas Health Science Center and two co-authors, per capita Medicare spending in McAllen, Texas, was 86 percent higher than in its neighbor, El Paso. But the picture looked much different in the two cities' private insurance markets, where per capita spending was 7 percent lower in McAllen than in El Paso.

Why the difference? Franzini's team suggests it may have something to do with incentives: Private insurers, who have profits on the line, do a better job of keeping costs down through review and oversight. Medicare's lax spending controls are more easily gamed by providers looking to milk the system.