Medicare and Commercial Health Insurance: The Fundamental Difference

Diane Archer | Health Affairs Blog | February 15, 2012

As the debate over Medicare continues in connection to America’s fiscal problems, it is critical to understand how Medicare differs from commercial health insurance for working people. There is a fundamental difference between these two types of health insurance plans, one social and one commercial.

The basic difference between Medicare and commercial insurance is that Medicare is designed to absorb risk, serving individuals who have or may have costly and complex medical needs as well as the relatively healthy, whereas commercial insurance is required to protect its business interests by avoiding those most likely to use medical care. That’s why Medicare was first enacted. People over 65 were unable to buy commercial insurance because they use three times more medical services than working people; it was unaffordable or insurers simply refused to provide it. And now it’s simply unrealistic to imagine that commercial insurance companies will change their fundamental business model and work to protect the health and financial security of most Americans...