Medicare Influence on Private Insurance: Good or Ill?

Medicare has profoundly affected private insurance market oportunites, the technology and infrastructure used by private insurance, the culture and expectations of providers with whom private insurers must deal, and the culture and expectations of the employers and individuals who purchase private insurance. The Medicare program might be characterized as the pre-eminent fee-for-service (FFS) indemnity health insurance program in the United States. It protects or indemnifies its beneficiaries against the costs of covered health services by any licensed physician or health care provider they choose and pays bills for their services. Medicare's pre-eminence has been earned by taking what was state-of-the-art private practice at the time of the program's passage and greatly refining it through research and demonstration over its 30-year lifetime. In this refinement process, Medicare has profoundly influenced private insurance practices and markets, both for good and ill—from the perspective of private insurers. Private insurance practice today, ironically, is rapidly moving away from the FFS indemnity model. Medicare is in danger of being left behind, and the direction of influence between Medicare and private insurance being shifted. To better understand Medicare's past influence and potential future, it is useful to look at four areas: private insurance market opportunities; insurance technology and infrastructure; provider culture and expectations of insurance; and insurance buyer culture and expectations of insurance. This article looks at Medicare's past and future influence in the framework of shifting paradigms. The shifts are explained in the rest of this article and summarized in Table 1. It is worth noting that many of the influences for good and ill described here apply to all FFS insurers, not just to Medicare.