Medicare for Beginners

By James Kwak

This isn’t a post explaining how Medicare works in detail. It’s a post about why Medicare matters to you.

The basic “problem” with Medicare is that its liabilities are projected to grow faster than its revenues indefinitely because health care costs are growing faster than GDP (and Medicare’s revenues are a function of wages).* The “solution” proposed by Paul Ryan is to convert Medicare from an insurance program, which pays most of your health care expenses, to a voucher program, which gives you a certain amount of money that you can try to use to buy health insurance. I’ve described the main problems with this approach already: it transforms a large future government deficit into an even larger future household deficit, and on top of that it shifts risks from the government to individual households. Today I want to look at this from a different angle.

We created Medicare in the 1960s because retired people did not have another viable way of getting affordable health insurance. Medicare forces workers to pay for retirees’ health insurance, but since workers become retirees someday, it’s in their own interests to do so, assuming the system remains in place.

Forty-five years later, the same factor that is creating the projected Medicare deficit — health care inflation — is also making it even harder for non-working people to get affordable health insurance. On its face, this should make it even more important to preserve the basic structure of Medicare, even if it requires a higher payroll tax: you pay now, but in return you get decent health insurance later. But instead of being concerned with ordinary people — the workers who will need Medicare when they retire — the political class is concerned with the abstraction called the government deficit. Hence its overriding concern is providing cost certainty to the government, even if it means eliminating Medicare’s most important feature — guaranteed insurance.** In addition, the political class seems to think that cutting spending is always better than increasing taxes — even though, to some extent, the two are equivalent.

To put it another way, think about it from the perspective of someone who is working now. She may have a stable job, a good income, and decent health insurance through her employer. But someday she is going to stop working. In a world without Medicare, or one where Medicare has become a voucher system, that means she has to buy insurance on the individual market. And the most important thing about the individual market — more important than the high prices and the lousy policies — is that no one has to sell you a health insurance policy. If you have the wrong medical profile, you could be simply uninsurable. That’s how a free market works.***

This is an enormous source of financial insecurity. If you are forty years old and healthy now, you simply cannot insure yourself against the risk that you will be uninsurably unhealthy when you are sixty-five. And this is not a poverty problem. If you have a major illness, you will not be able to pay for all of your medical care without insurance unless you are truly, deeply rich; being merely affluent or “high net worth” won’t cut it. In other words, the upper-income need Medicare just as much as the poor.

So how much would you pay just for the certainty that, when you turn sixty-five, you will be insurable? How much would you pay on top of that for the certainty that your premiums will not depend on how healthy you are? How much would you pay on top of that to have heavily subsidized premiums when you retire (Part A is paid for by current workers and Part B is subsidized by general revenues)? Right now we pay 2.9 percent of our wage income. I would pay a lot more than that — again, because it protects me from a risk from which I cannot protect myself any other way.

That is the question that matters. I believe that if people were to understand the options, they would rather pay considerably more than 2.9 percent of their wages today to get real Medicare in the future than pay 2.9 percent of their wages today to get a voucher in the future — especially when the voucher is designed to be worth less than they need to buy health insurance, and there is no assurance that they will even be able to find an insurance policy that they can use the voucher on.

In short, Medicare is a great, great thing for participants, by which I mean both workers and retirees. The very factor that threatens its fiscal stability — health care inflation — makes it an even better thing for workers. Because the risk of future health care inflation (and therefore the financial risk of future bad health as well) is so much greater than it was in 1965, we should be willing to pay more to insure ourselves against that risk — especially when we have no other way of insuring ourselves.

I realize that simply raising payroll taxes periodically to compensate for health care inflation is not a complete solution. In the long run, we need to find a way to control health care costs (something, incidentally, that Medicare does better than private insurance companies today). We need more effectiveness research and, more importantly, we need incentives to push providers toward actually applying effectiveness research. (A single payer system could solve this problem, but I’m not holding my breath.) But in the meantime, the insurance component of Medicare — by which I mean not that Medicare is an insurance program, but that Medicare insures you against the risk of not being able to buy insurance — is more valuable than ever.

As Jonathan Oberlander discusses in The Political Life of Medicare, political elites have been primarily concerned with cost control since Medicare’s beginnings, even while the public was willing to pay more for better benefits. Today, the public should be willing to pay more to preserve Medicare’s most important benefit. Someone in Washington should be willing to take up this fight. But who?

* Medicare Part A is paid for by a dedicated 2.9 percent payroll tax. Part B is paid for by beneficiary premiums and by general revenues, but general revenues also grow with GDP, not with health care costs.

** This is not just a Republican position. For example, Alice Rivlin co-signed an earlier version of the Ryan Plan, although she opposes the latest version.

*** Things may not be quite so bad today. The Affordable Care Act (i.e, “ObamaCare”) prohibits medical underwriting and pricing of policies based on health characteristics, and it also provides subsidies for lower-income households to buy insurance. But — the Ryan Plan eliminates the individual mandate and the subsidies, which are the very mechanisms that make insurance affordable for people with modest incomes, such as many seniors.

Update: Here’s another way to put it. Medicare is like an insurance company that sells a unique product. You pay 2.9 percent of wages while you work. In exchange, you get a decent policy that kicks in at age 65 and covers you until you die; during that period, you only have to pay an artificially low premium as well as some cost sharing. No one else sells that policy for any price, nor should you trust any insurer that sells that policy for any price, because the only entity that could reliably deliver on such an open-ended, long-term promise is the government.

Now, Medicare is realizing that it’s not charging enough for that policy. Paul Ryan says that therefore we should scrap the whole thing. Instead, the first question to ask should be whether Medicare can raise prices. Given the fact that there is no even remotely comparable substitute available on the market, how much would you be willing to pay for it? I think most people would pay more than 2.9 percent. That should be the first option on the table.

46 responses to “Medicare for Beginners

  1. Great post.

    Medicare is great policy and great politics. Eliminating it would greatly increase the amount we spend on healthcare and would greatly reduce security for the majority of Americans.

    Ryan’s plan would shift hurt almost everyone, but reduce the tax rate on those who can most afford to pay taxes. No wonder it’s so popular with the pundit class.

  2. “If something can’t go on forever, it will stop.” –Herb Stein.
    This post illustrates what lots of people seem to agree on — that medical care spending will continue to grow much faster than the economy for at least the next 75 years. But it can’t continue to grow faster than the economy forever, since at some point it would represent the entire economy. That means that all US production in a given year would be medical care — no food, no haircuts, no financial services, no resource extraction, nada. Just medicine, surgery, tests, etc. This seems unlikely, thus I began with the Stein quotation. Growth in medical care spending has to slow down, and probably will long before it gets anywhere close to 100% of GDP — or even the 20% of GDP shown in the chart.

  3. For an unexpected perspective on the individual insurance market, read the Kaiser Health News interview with Aetna’s CEO — who believes he and his son would be uninsurable in that market due to pre-existing conditions. He also believes the US needs a stronger individual mandate than the ACA provides (not so surprising).

  4. Medicare is excellent but market conditions are effecting many people who are not opting to avail it anymore.

  5. I am thinking private companies will eventually come in and sell something like Medicare — call it long-term health insurance — to individuals during their healthy working and productive years. As consumers we’d pay our premiums either to Medicare or to a pvt company selling an insurance product similar to Medicare — essentially a wash for us. But it privatizes Medicare for profit — I’m starting to think that’s what Ryan’s proposal is really about.

  6. Herbert Wetherby

    @ Engineer: This seems unlikely, thus I began with the Stein quotation. Growth in medical care spending has to slow down, and probably will long before it gets anywhere close to 100% of GDP — or even the 20% of GDP shown in the chart.

    I have a hard time understanding why we compare health costs to the GDP at all. Consider this, if nearly every citizen came down with a fatal circumstance and needed to have expensive medical treatment for the cure, it would wonders for the GDP, but absolutely nothing towards the betterment of the country. Why is it you throw yourself off track like that? Are you in a pity, or have no other jive??

  7. Herbert Wetherby

    @ Bill N Roc

    Atnea is a joke, and should be the first casulity in the insurance war.

  8. Erik Wheaton

    Excellent article. Note also that as the working and middle classes bankrupt themselves paying for medical care there may not be any Medicaid and thus no medical coverage whatsoever.

    Do we really want to contemplate having armed guards at every emergency room/hospital to keep the uninsured out?

  9. You mention that medicare is more efficient that private insurance, but you don’t provide any details to back this up. You also don’t mention the fee-for-service structure of medicare and its influence on how the medical industry is structured. Medicare is, by far, the largest medical insurer in the United States. To claim that it has little influence on medical cost inflation is a bit like claiming that Intel has little influence over the cost of microprocessing or that Wal-Mart has little influence over the cost of groceries.

  10. “If you have a major illness”
    this should be changed to “WHEN you have a major illness”. Because it’s inevitable.
    I think people are too caught up in the short term that they are willing to say “I would rather keep that 2.9% than give it to poor people, especially minorities”. Plus I think that american exceptional ism has so taken over the mindset of people that they think they can magically achieve the necessary savings, or work more hours, to be able to do whatever they want.

  11. I would also point out the dissonance in the thinking of people who worry about 2072 when it comes to debt, but can’t bothered to address the very real climate change happening now that could become irreversible and deadly by the 2020s. (Not to mention the Hubbert curve and peak oil, which I just did.)

  12. There are two major factors that contribute to this society’s inability to reasonably and effectively address this issue, (1) short-term focus of attention and (2) the bias in the information provided. On the first point, anything that turns attention away from the proximate, in either time or location, is deemed unimportant and unnecessary—we deal with crises in the moment, not their development. On the second point, with politicians’ tending toward fear mongering and the public unquestionably believing most everything their respective party representatives say—dismissing out of hand another perspective—the result is people are not only misinformed, they are manipulated. No wonder contention and confusion abounds!

  13. We really need to get away from paying for medical care by cost and paying for it by value. That is really where effectiveness research has to be brought to bear. Only by limiting payments to their value can medical care inflation be brought into line.

  14. Excellent post James. Did you send it to Paul Ryan and any of the pundits (e.g.Gergen, Borger) that are heeping all that praise on him for being so courageous so gutsy.

  15. This is a good post. Thanks, Simon. Its a fact that many of us do not miss what we have until its gone. GOP will pay heavy price at the polls after they make Medicare as is, disappear. Its coming. But one thing I do not understand is why cannot DEMS are not able to push back or if they are doing it does not appear so.

  16. Kill the health insurance companies. Kill them all and kill them now ! Nothing but rent collectors.

    Jim

  17. CBS from the West

    If we’re having a primer on Medicare, I think a few more points are worth mentioning:

    1. Medicare is inextricably entangled in the US health care system as a whole. You cannot control Medicare costs without controlling them system-wide.

    2. Price inflation is only one of three components driving the explosion in Medicare costs. The other two are the aging of the population with its consequent increase in the number of people eligible for Medicare, and the explosion over the years in the quantity of health services rendered (all else equal).

    With regard to the former, changes in health policy are unlikely to make much impact (unless we drastically raise the eligibility age). With regard to the latter, there is ample policy leverage here, especially since many of the newly-added services are of unknown value for health. The European countries use far fewer services than we do, and it is this, as much as more than lower prices for those services that enables them to keep their populations as healthy as ours (or healthier) for, on average, half the price. To do this in ways that do not wreak havoc with our already mediocre health statistics, though, will require a thoughtful, evidence-based approach; in particular simply capping the total amount of expenditures and leaving it to “the market” to sort out what is of value will not do.

    3. Medicare payments are mostly determined by the Centers for Medicare and Medicaid Services (CMS), an agency in the Department of Health and Human Services. While the CMS staff try to do this in a rational way, they are often subject to heavy-handed political interference from Congress. This can take the form of direct pressure from a Senator or Congressman whose constituent wants coverage for a device he/she makes, or legislation. As an example of the latter, the new digital mammograms cost almost exactly the same to produce and manage (total life-cycle costs) as the older film mammograms. [As to value, there is controversy as to whether they are actually any better. The best evidence seems to be that they are slightly better for young women, but slightly worse for older women, in whom breast cancer is more common. In either case, the difference either way is small.] But the manufacturers of digital mammography equipment lobbied to mandate that digital mammograms be reimbursed by Medicare at around twice what is paid for film mammograms, and Uncle Sam obliged. Thus, all we have learned about regulatory capture by the finance industry will play out similarly as we move our attention to the health care industry.

  18. Good post.

    Of course the most direct way to cut health care spending is to prevent disease. Most cancer and heart disease can be prevented through nutrition. The facts are all there in T Colin Campbell’s “The China Study” but we Americans are unlikely to change our unhealthy eating habits.

  19. Whether the government shoulders the entire burden of medicare’s shortfalls for all time to come, or the government pushes more of the costs onto individuals, the real question is and has always been: What kind of scheme can __force__ health care costs down?

    The government cannot do it because, as we’ve seen, Big Pharma and Big Hospital have thoroughly corrupted it.

    The individual cannot do it because real treatment choice is not available in this country, and insurance and treatment costs are free to skyrocket forever.

    Further complicating matters is that, in our system, medical treatments are often nearly worthless.

    The great insight behind the old Health Savings Account approach and any new plan that forces the individual on to a health care budget is that the individual becomes actively engaged in choosing their own treatments to a much greater extent than they do today. And this stands a chance of controlling costs. Doctors cannot order a treatment you cannot afford. They’re going to have to sit down and get rational about over testing and over treating.

    And trial lawyers like John Edwards will have just have to settle for less income.

    If the government were not so thoroughly corrupted by the big industry which medicine (and trial lawyers) have become, the government might be able to do it.

    But a lot of people have become skeptical about the government’s ability to resist these big money forces.

    Even Obama could not meaningfully reform Goldman Sachs (one of his biggest campaign contributers, btw).

  20. Isn’t Ryan’s voucher system really a rationing system? Isn’t a voucher a ration? Didn’t Republicans say they don’t want rationing? If Ryan’s proposal passes, when we give an eighty year old person their voucher, won’t Republicans essentially be saying, “Here’s your ration for the year. Try not to spend it all at once. Try not to get snookered. Good-bye!”?

  21. With vouchers replacing Medicare, who needs “death panels”?

    Removing Medicare is a death sentence to millions = thanks GOP.

  22. Last year I was diagnosed with type II diabetes, & my employer had three layoffs. I live in Dallas, but was born in Calgary. (I’m 6’2″ & 188lbs.)
    I wondered about state pools for people with pre-existing conditions, so I asked BCBS. The Texas high risk pool would charge $15,000/year premium & a $14,000/year deductable.
    No private company will insure me.
    I’m keeping a tight grip on my Canadian passport…

  23. Awful article, James! ….and for a man who purports
    to know something of economics.

    There is nothing — except medical care — about which the customer/patient gives not a fig about cost. …Never sees it, doesn’t care, wants only the best, the most…. $1.75 million for my 11 month old premie baby with the feeding tube the docs are afraid to try to take out….? He is *worth* it, the little doll! Money is no object!

    Marry the consumer disregard — disdain, even — for costs with a greedy industry anxious to provide more and more and more and better and better and better (regardless of whether, beyond the marketing hype, they actually do) and you got rising cost.

    Make people responsible once more and, possibly, we could even get the cost of a tonsillectomy back down to, say, five chickens and two months worth of butter, or somesuch.

    Medicare, Medicaid, and the whole damn medico/insurance complex is every bit as corrupt as the bankers who eschew regulation and oversight.

    We need to make choices and, yep, even death can be a good choice, as the aged Eskimos heading to sea on the ice floe understood.

    More, more, better, better, costs be damned has never worked, James. You can try with the scotch tape, but just like the Chris Dodd/Barney Frank “financial reform” bill, the bastards will wiggle around it.

    Paul Ryan may not have a perfect answer, as yet. But he is certainly going in the right direction. Help him.
    ….Lady in Red

    And,

  24. I just had a thought:

    Why not replace the food stamp program with a limitless table of goodies from caviar to champagne, available to all, in unending abundance.

    And, it’s free! There is never, ever, a dinner check.

    Then, try to control the cost of the food stamp program.

    Want to try that one, James? ….smile.
    …Lady in Red

  25. Question for Paul Ryan:

    Given that roughly 1/3 of an individual’s lifetime medical costs are given incurred in their last year of life and that the average life expectancy in the US is 78 years old, in the absence of regulation surrounding forced coverage, what makes you think that private insurance companies won’t simply refuse to provide insurance at any cost to individuals over, say, 75? How does your voucher plan accommodate this problem? Or maybe that’s where all the cost savings are.

  26. cbs from teh west is , I think, the only person to get it almost right…
    the rise in medical costs is mainly technology driven
    which is probably hard for most bloggers to grasp: after all, TVs, computers, cameras, cars..in most areas of life, technology lowers costs.
    but not in medical care; technology increases costs.
    since we pay for state of the art care, technological progress – and as a scienctists, there is a lot – will raise health care costs.

    yes, H Simon is right, but given how much people want health care, and how much power the rich have, it is possible that we will see a future where there is no gov’t paid health care of any sort, but ever larger tax breaks for the rich…god, what an awful view

  27. Very good points. This is how we needed to discuss health care reform in 2009 (but switch out “when you turn sixty-five” for “regardless of job status”):

    “So how much would you pay just for the certainty that, when you turn sixty-five, you will be insurable? How much would you pay on top of that for the certainty that your premiums will not depend on how healthy you are? How much would you pay on top of that to have heavily subsidized premiums when you retire (Part A is paid for by current workers and Part B is subsidized by general revenues)? Right now we pay 2.9 percent of our wage income. I would pay a lot more than that — again, because it protects me from a risk from which I cannot protect myself any other way.”

    Genuine health care reform would have achieved coverage for all, paid by the consumer with an increase in the Medicare payroll deduction. This number, the current 2.9%, is easily identified right there on everyone’s pay statement. Meaning, it’s a real number that everyone can relate to. So it’s easy to evaluate the impact of even doubling the payroll tax. For many, estimating even a tripling of the payroll tax is easily comparable and might even be favorable to the amount already paid through payroll dedux for our “share” of employer-provided health insurance plus out of pocket costs for utilizing services. Particularly for those experiencing medical bankruptcy, even a triple of Medicare payroll tax would seem better than going through the profound uncertainty, disruptions, and devastation we all risk interacting with American health care (although we’re not all exposed to the same levels of risks). I truly believe the health care debate would have been more rational if those basic dollars and cents had been clearly presented to the nation up front. Having said that, there are short-comings to Medicare coverage as currently designed and I think that’s another big part of the problem of trying to have a rational public conversation about “Medicare for All”.

    This paper is from 2003 but it’s an easy read (not too long, not too technical) and has very specific information about how the French finance their national health system (which is a mix of public and private) with multiple revenue streams:

    http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1447687/
    The Health Care System Under French National Health Insurance: Lessons for Health Reform in the United States. Victor G. Rodwin, PhD, MPH. Am J Public Health. 2003 January; 93(1): 31–37.

  28. tigger nitro

    “because the only entity that could reliably deliver on such an open-ended, long-term promise is the government.”

    Wow, that pretty much sums it up for this blog.

  29. CBS from the West

    @Lady in Red

    Actually, the food analogy to our health care system is somewhat different from what you propose:

    Some people would have a “free” admission to the all-you-can-eat buffet you describe. Others would be left outside to starve.

    And those who are “in” would then be served, and ultimately, force-fed by waiters who get a commission for everything they can shove down your throat.

    And yes, the price of food would rapidly spiral out of control.

    But there are some key differences. When you are overstuffed at the table and the waiter is trying to push yet another dessert on you, it is simple enough to recognize that you have already overeaten. You get up and walk away from the table. In health care, you will be told (rightly or wrongly) that you are risking life or limb by not continuing to consume–and you have no way to know if that’s the case or not.

    Health care is not like food or typical commodities. The health care consumer is incapable of ascertaining the value and making sensible decisions. To have a stable system requires reining in the behavior of the providers so that they allocate resources rationally.

  30. What’s missing from this whole debate is that no one knows what the next 10 to 20 years of research and innovation in managing the delivery of medical services will bring.
    This would particularly be true if the nation embarked on a mission to radically improve the cost structure of delivering quality medical care, such as JFK’s decision to land a man on the moon. To pretend that with the ever faster pace of technological change that we are locked into trends that can be forecast with precision 40 to 70 years in the future is simply absurd. We should be able to manage our future if we set our minds on doing so.
    In addition we need to expand the tax base for medicare and social security to include all earing income including carried interest for hedge fund and venture capital managers.
    For social security this might include creating several new bend points whereby contributions for earings above certain amounts earn progressively less in benefits for those making the contributions so that their contributions can subsidize those at lower income levels. This could then be used to expand social security benefits instead of cutting them.

  31. jeff simpson

    I would like to see the Medicare voucher program applied to members of Congress. It seems that if it is good enough for the American People, then it should be good enough for them.

  32. James, the fundamental problem seems to be not the Medicare but the inflation of health care costs. This inflation is driven by the lack of competition in health insurance industry. The inflation of the cost is in best interests of the insurance companies as well as in the interests of the health providers. Hence, the system of commercial health insurance is inherently flawed and leads to indefinite inflation of health costs. I will get “you are a socialists” thrown into my face for this suggestion, but I am not, and I am convinced that health care has to be regulated in the same way as is army, police or fire departments. In other words, commercial health care should not be the only option of getting access to the health providers, because health care is a basic need. Moreover, the health of the nation in general is in best interests of all of us, including those who can afford their own health care in the current market system. This does not mean that health insurance and private health care has to be abolished. Not at all, just as you can hire a private security company to guard you or your house you will be able to go to a private health care provider.

  33. marc and Nancie Froning

    Ya, people need to become more responsible at maintaining their health by what they eat, how they exercise, how they think. That would solve a large part of the medical cost problem. Another part would be getting sane judges that throw out frivolous lawsuits. Another part would be sane honest doctors that actually know how to treat and whether to treat or not to treat. Hey, maybe phone doctors could save the system a lot. Why should I have to always come in to the doctor to get their response to my malady. And why should they get paid for not curing my malady? Hey, if you or I am hired to do something and I don’t do it right or don’t complete it, do we get paid in full? NO! That just bugs the crap out of me that a doctor or hospital gets paid for “not curing” my illness. Or they may give me pills that actually prolong my illness or make it worse.

  34. Ya, people need to become more responsible at maintaining their health by what they eat, how they exercise, how they think. That would solve a large part of the medical cost problem. Another part would be getting sane judges that throw out frivolous lawsuits. Another part would be sane honest doctors that actually know how to treat and whether to treat or not to treat. Hey, maybe phone doctors could save the system a lot. Why should I have to always come in to the doctor to get their response to my malady. And why should they get paid for not curing my malady? Hey, if you or I am hired to do something and I don’t do it right or don’t complete it, do we get paid in full? NO! That just bugs the crap out of me that a doctor or hospital gets paid for “not curing” my illness. Or they may give me pills that actually prolong my illness or make it worse.

  35. @Greg. I agree with your diagnosis that inflation of health care costs is the problem, but not with your “socialist” solution. Let’s try a free market solution. First, let’s recognize that insurance does not set prices, the health care providers (HCPs – doctors, hospitals, etc) do.

    1. Pass a law requiring HCPs to charge all customers (patients) the same price for the same service. They cannot charge a patient with Medicare one price, those with Medicaid a second price, those with BCBS a third price and those w/o insurance yet another price.

    2. The federal gov’t will post a national fee schedule for medical services. HCPs can charge any price they want, BUT if their fees differ from the national rate, it must be prominently posted on-line and in their waiting room for all to see.

    3. Require insurance providers to list their reimbursement amounts.

    These three changes would introduce competition where we currently have none. If I know my insurance company will reimburse me $40 for an office visit and Dr X charges $50, then I know I will have to pay $10. If Dr. Y charges $70, I would have to pay $30. I can decide if Dr. Y is really worth the extra cost. If Dr. Y loses too many patients, he can decide that lower fees might be in his best interests.

    Not only would this introduce price competition, it would also simplify the billing for the doctors, reducing one of their costs.

  36. @JD Johnson: The CDO report on the Ryan estimates that total costs for equivalent health care will be a lot higher without Medicare than with Medicare. Now, structuring Medicare as a traditional indemnity plan is a problem; Medicare doesn’t have particularly good incentives against overconsumption/overtreatment, and it could be improved. But the fact that Medicare pays less to providers than other plans for equivalent treatment is pretty well accepted. In fact, doctors complain about it all the time.

  37. @Lady in Red: The fact that consumers don’t bear the full cost of their care does create distortions. But saying, as you do, that they don’t bear any costs is simply wrong. Have you ever heard of a co-pay or a deductible? Medicare Part B has 20 percent cost-sharing, for example. Many people every year forego needed care because of cost.

  38. I understand, James.

    You are a socialist.

    A zillion years ago, when I first found Simon from
    the Atlantic Monthly article, I was impressed, fascinated.

    I read your socialist fans. Simply, I come, more from the Ayn Rand side of the table and, no, the silly co-pay does not count: “people” have been removed from responsibility for *anything* vis a vis medicine in America.

    That is wrong. It is not good.

    It is not even healthy. ….Lady in Red

  39. @CBS @Ralph

    The CBS analysis is beautifully clear. Decisions about how to constrain medical expenditures must fall on the medical/scientific enterprise, not on private insurers, pols or consumers.

    I am skeptical about so-called “comparative effectiveness research” (CER), because it is based on an antiquated model of how and why treatments work. Essentially all clinical trials rest on the assumption that variations in response to treatment are random. But we know that’s often untrue, that individual differences in genetic constitution (or in the specific mutations in a tumor, or…) govern the appropriate therapy and also adverse side-effects. There is thus potentially huge cost-saving in “personalized medicine” that uses a therapeutic laser rather than a firehose (metaphorically speaking).

    Johns Hopkins has changed its entire medical curriculum to take account of this 21st-century paradigm. Heavy emphasis on phenotypic variation, interactions between genetics & environment, etc.

  40. @Lady in Red 4/13/2011 9:07 a.m.
    “I understand, James.
    You are a socialist.(…)
    Simply, I come, more from the Ayn Rand side of the table>”

    Ummh, like the Ayn Rand who, when her shirt was burning, sneaked into Govt Healthcare assuming a fake ID? That “Socialist” club iron don’t cut it no more. Health care and profit is a pretty bad mix. I would agree that consumers of health care need to have some skin in the game, but under Ryan’s proposal their skin would be for sale. We need transparency of both cost and effectivity of treatments, wonder why PhRMA lobbied the hardest against effectivity control?

  41. The author of the original article does not explain the argument against increasing the Medicare tax on income to meet costs. If everyone is taxed at the same rate, the rich are not likely to object. What is the problem?

  42. Great piece.

    I take issue with, “…the political class is concerned with the abstraction called the government deficit.”

    The deficit is not an abstraction.

  43. Patient cost-sharing — primarily in the form of tiered drug co-payments, office visit co-payments, and the 20% coinsurance for Part B — represent the prevailing constraints on producer prices in the system. Their impact on service costs has been modest and with the backlash against HMOs in the 90s, their impact was further diminished as patient “choice” became the predominant cultural norm.

    At the same time, as patient cost-sharing burdens have risen, utilization of appropriate services has been affected, with patients opting for less expensive inputs and, in a growing number of cases, foregoing care altogether, with undesirable consequences for outcomes. Price elasticity of demand represents an increasingly important variable in healthcare policymaking.

    Overall, requiring patients to have more “skin in the game” has generally failed either to contain costs in a meaningful way or to enhance or event maintain health outcomes. The effectiveness of the healthcare market remains significantly weakened due to assymetric information, a phenomenon that exacerbates the problems associated witht eh current fee-for-service model.

    Until the prevailing payment model shifts away from rewarding outputs towards one incentivizing specific outcomes, initiatives like HSAs and “skin in the game” will only lead to deteriorating health status and inexorably rising costs.

  44. Ashley Blinn

    As others have pointed out, the Ryan plan does not propose a control for the rising medical costs. That is what Obama Care tries to do.
    There are many areas where health care costs can be controlled, and simply relying on the market place is not the answer. Doctors and hospitals duplicate too much of their technology, and function in too many cases as stand alone operations. We do not have standardized electronic medical records. If we did, duplication of treatment efforts, “doctor shopping” for drugs and “opinions” might be reduced. Does every hospital need to have an MRI machine? Do hospitals in a community need to compete with each other?
    The amount of money and finite resources committed to artificially prolonging the lives of hospitalized elderly dying patients must be addressed. There will be “rationing,” one way or another. It’s best if we can preplan.
    The notion of providing vouchers in place of current Medicare is a prescription for disaster!

  45. The 2.9% figure makes Medicare sound cheaper than it really is. There’s a corresponding 2.9% paid by employers that’s really out of the worker’s income. So then 5.8% is not enough.

    Plus, it is not really insurance since lower income people get their medical costs paid for by people who pay their percentage on a much higher income.

    Plus, some of the medical care provided to old people under Medicare is subsidized by those paying cash or via private insurers. The lower Medicare pay for many procedures mean’s there’s cost shifting where even the 2.9% + 2.9% is not the full cost.

  46. If Medicare is not reformed, then by 2020 the program will cover a minimum of 60 million citizens and, at present rates of growth, will cost $20,000 per beneficiary for a total of $1.2 trillion.

    We cannot do anything about the 33 million Americans now between 55 and 65, who will enter Medicare in their time.

    We can do a lot about the average cost per beneficiary.

    Too many reform proposals nibble around the edges, and look for tiny savings by not paying for obscure new procedures.
    As documented by George Halvorson way back in 1996, medical providers can adjust utilization to get around these restrictions with ease.

    What about a direct approach? Step One, use the Dartmouth research data to reveal geographic variations in per enrollee spending. In Miami the average is $14,000; in Iowa the average is $7,000.

    The next step requires a simple computer program. All Miami reimbursements are cut in half. Every doctor visit, every test,
    every hospitalization is cut in half.

    Special rules on balance biling need to be adopted. If the care
    is involuntary, i.e. for cancer or broken bones or impacted bowel, the patient is protected against paying the difference.
    If the care is voluntary like exploratory PSA tests, the patient and the doctor will have to work this out.

    Incidentally Germany, France, and Japan have used techniques of this nature. The writing of Joseph White has numerous other examples.

    Can we do it?

    Comments welcome!

    Bob Hertz
    Director, The Health Care Crusade