Who Wants a Voucher?

By James Kwak

In yesterday’s post, I compared two ways of solving the long-term Medicare deficit: (a) increasing payroll taxes and keeping Medicare’s current structure or (b) keeping payroll taxes where they are and converting Medicare into a voucher program. As a person who will need health insurance in retirement, I prefer (a), but others could differ.

Today I want to ask a different question. Let’s say Medicare does become a voucher program along the lines proposed by Paul Ryan. So workers pay 2.9 percent of their wages and in retirement they get a voucher. According to the CBO, if you turn 65 in 2030, that voucher will pay for 32 percent of your total health care costs, including private insurance premiums and out-of-pocket expenses (see pp. 22-23). Would you rather have that deal or nothing at all?

At that point, I think a large and powerful minority of people would prefer to just get rid of what’s left of left of Medicare. If you’re young, why would you want to pay 2.9 percent of your wages for forty-five years in order to get back a voucher that will only cover a small fraction* of your health care costs for about twenty years? The Ryan Plan converts Medicare from an insurance program to a cash-shuffling program (you pay payroll taxes, you get back a voucher). At that point, since Medicare can’t magically create value, the only thing to look at is whether you get back more cash than you put in, which depends mainly on how much money you make. If you’re young and have a high income, it’s pretty certain you won’t get back what you put in, since your contributions are a function of your income and your benefits aren’t; you would be better off investing the 2.9 percent in an index fund and using the returns to pay for health insurance in retirement.

In other words, when you convert Medicare to a voucher program, it becomes largely just a redistribution program. Low wage earners will do better than they would without the voucher program and high wage earners will do worse.

There is still a modest amount of insurance, in two forms: (1) Since you don’t know for sure what your future income will be, the voucher program protects you against your income falling in the future. (2) Since the vouchers are like indexed annuities (the index is designed to be too low, but at least they pay out until you die), they protect you against living for too long. These features are similar to Social Security, and they certainly aren’t worthless, so people in the middle will probably be better off with the voucher program.

But a voucher program eliminates three other types of insurance that traditional Medicare gives you: protection against (3) being medically uninsurable when you retire, (4) not being able to afford health insurance when you retire, and (5) health care inflation after you retire.** If you have a high income, there is a good chance that those are the protections you want from Medicare. High-income people aren’t worried about (1) and (2), because those only affect how much cash they have to buy insurance with, and they already have a lot of cash. They are worried about (3), (4), and (5), because those affect whether they will be able to buy insurance at all.

As a result, high earners will begin asking why they should be contributing to low earners’ vouchers instead of just putting the 2.9 percent in their own savings accounts to fund their own individual vouchers. Around 2024, when it becomes clear that “Medicare” is just an insufficient voucher program, Republican presidential candidates will begin campaigning on a platform of converting Medicare into individual, tax-advantaged health savings accounts. The rich will back those accounts (and they will be positioned to the poor as an “ownership opportunity”) and even the redistributive part of Medicare will melt away.***

For the record, I think that even the voucher program would be better than nothing precisely because it still has a small insurance component and it still has a redistributive component. Those are good things. But a voucher program will have much less political support from the upper class than traditional Medicare has today, and that support will only weaken when people realize how insufficient the vouchers really are. At that point, “Medicare” will be just an unpopular payroll tax funding an unpopular voucher system.

Of course, this is probably part of the plan: first eliminate the parts of Medicare that matter most to people, so it becomes easier to eliminate the whole thing later.

But I would put this in a different light. The real problem today is an individual market that makes it difficult for people who are not covered by employer plans to buy decent health insurance at an affordable price. If we were to look at that problem and design a solution, would we come up with Paul Ryan’s voucher program? Of course not. No one would think that would be a good idea, because it doesn’t solve the real problem. The problem it does solve is current Medicare’s projected fiscal deficit — which is an artifact of the way we’re currently trying to solve the real problem.

If we were starting from scratch, we might have a single payer system. More likely, we would have a traditional Medicare system — just with a higher payroll tax and stricter cost controls. We would pay more than we currently pay and we would get an insurance policy that isn’t as flexible as the one we currently get. But we would still be solving the real problem. The Ryan Plan doesn’t even try.

* For someone entering the workforce today, the initial voucher at age sixty-seven will pay for far less than 32 percent of her health care costs — and that percentage will continue to fall — because the vouchers are indexed to the CPI, not to GDP, let alone health care inflation.

** The Affordable Care Act gives you some protection from (1) and (2), but the Ryan Plan eliminates the parts of the ACA that give you that protection. Nothing protects you from (3).

*** You might ask why this wouldn’t also happen with Social Security. Well, it might. But compared to Medicare, Social Security has a couple of things in its favor (politically speaking). First, it’s less progressive in two respects: payroll taxes are capped and the benefit formula is based on your contributions. So while it is redistributive, it’s not that redistributive, which helps it maintain the support of the upper-middle class. Second, and more importantly, Medicare has gotten the reputation of being a complete fiscal basket case, which makes radical transformation possible. Since Social Security’s deficit could be solved with relatively moderate tweaking, it makes it harder to argue for radical changes.

59 responses to “Who Wants a Voucher?

  1. John Personna

    I’m a non-economist and casual reader.

    I always thought I wanted “vouchers” because I thought they meant something else. To me, a voucher presented to an insurance company would mean that the government would cover certain procedures. The value add for the insurance companies would be in more advanced procedures.

    To contain costs I’d imagine the covered procedures as those for life threatening conditions, and those with significant chance of success.

  2. Read my comments to your previous post.

    This is, well, silly. ….Lady in Red

  3. It is amazing to me how one “over thinks” simple
    things. ….Lady in Red

  4. I have an idea raise NOT the retirement age but the years worked spread.
    For example someone like myself who sits at a computer and models ecosystems should have to work far more years than a gentleman or woman working in a Flint Michigan factory or a West Virginia coal mine.
    What needs to be done is we take the every energy expenditures per job in kiloCalories per hour and relate to the average energy expenditures for the types of jobs I just mentioned. I would come in under the average and therefore the difference in % would be added on to my number of years worked AND subtracted from the miner or factory worker.
    The problem is that we do need to raise the retirement threshold in some way because a number that is fixed like this one can’t work long-term structurally when the average life-span rocketed passed it in our search for eternal life. HOWEVER, this raising of the floor should not be applied uniformly. I don’t expect that a miner should work into his 70s or 80s like I plan to and I didn’t start when he or she did presumably somewhere in the late-teens to early 20s. There is a solution to this issue but it requires the kind of nuance and cooperation we can’t seem to elect into office.

  5. Vouchers will be susceptible to political pressure to reduce the amount of the voucher. Once it is reduced, there will be continued reductions until the voucher program will be eliminated. Count on it.

    Insurance companies will be the big winners, as they charge more and more for premiums and pay less and less for health care. Everyone on the system will be squeezed by costs for insurance, co-pays, and necessary procedures not approved or covered into the hundreds of thousands. Not to mention the numerous ways that insurance companies deny claims and procedures. Imagine the games they will play on seniors who will not be able to press their claims due to age and ill health.

    Many health commentators claim that current retirees will need $90,000.00 per person to cover medical expenses under the current Medicare program. A quick look at the average 401K of around $50,000, for those earners with a 401K, establishes that most retires will never have enough $ for health care even under Medicare. Add to that the dismal stats for saving and then you must ask who can afford health care under Ryan’s plan?

    With so much money going into health insurance and health care little will be left to consume other goods and services. This is harmful to the consumer based economy. If seniors cut back on health care, it not damages the health care market place but leads to a large segment of the population with untreated chronic problems. This will be another negative for the economy and society. Younger families will be burdened with the increased costs, if they can afford it, of the parents.

    Absent Medicare and Medicaid, many health care providers will be harmed economically. The rest of the public will likely become less healthy as the costs rise, because health insurance companies will continue to squeeze the providers and co-pays and uncovered procedures will rise. For at least the last two decades health care costs have risen at a pace that far exceeds inflation, often by double digits.

    It is very likely that under the Ryan plan, fewer and fewer employers will be able to afford health insurance for their employees. Employees will need to save more and more for their own care. They will have less and less to spend for other goods and services. Demand drives the economy. Absent a healthy workforce will sufficient disposable income, America will lose its completive edge.

    If the politicians want to save Medicare, then open it to all. Charge premiums reflective of income beginning at incomes more than $10,000 per year. Medicare negotiates costs and is the only program that contains costs (they rise slower for Medicare). The program will include all of the healthy young people which helps hold down the cost. Simple, look at the other national systems, their quality and their costs determine what would work best for America. Unfortunately, it is the lobbyist who will decide what is best for their client and not what is best for America.

    The marjority will lose under the Ryan plan, only a few will gain. And they will gain BIG.

  6. Go out and ask a few young people what they think the chances are that the proposed arrangement will be around in forty years for them to collect on their vouchers. I’d bet less than 20% of them believe in the likelihood of that kind of future. After all, it didn’t pan out for the boomers who paid their taxes into Medicare, did it ?

  7. One small quibble with wording: “when you convert Medicare to a voucher program, it becomes largely just a redistribution program.”

    Medicare is already just a redistribution program. The Ryan plan just changes the nature of the redistribution. One could achieve a similar outcome by adjusting Medicare’s formula’s so that it pays for fewer things. The eventual outcomes would be almost identical.

    Not saying I’m a fan of the Ryan plan or anything. I tend to dislike health reform programs that shovel increasing amounts of money into private health insurance without doing anything to curb private health insurers’ local monopolies & the lack of consumer choice inherent in the current employer-funded system. But I guess given their lobbying abilities that is the framework we are stuck with, whether we like it or not.

  8. anandopadooda

    We need a universal, single-payer system which provides simple basic medicine, including hospice care for alleviation of suffering. That system could be set up with nurse-practitioners or “barefoot doctors” and costs could be controlled. The choice should not be either access to outrageously expensive care — or nothing. Other countries have controlled health costs in this way. They ration, even when it means making hard decisions. We have resorted to insurance companies to make the hard decisions, but they are just another financial monkey on our backs, and hardly the right people to be deciding how to ration care.

    Advancing medical technology has forced us into this situation, and there is no end in sight. A wealthy person wants access to all medical advantages no matter how expensive, but there is no way they can be available to all. Why not come to terms with this fact and offer basic care to everyone ?

    One reason, I think, is that the medical establishment is as locked-in to the status quo as the insurance establishment is.

  9. John Personna

    “We need a universal, single-payer system which provides simple basic medicine, including hospice care for alleviation of suffering.”

    That can be a voucher, right?

    The voucher needs to be for pass-through coverage of specific procedures.

  10. That can be a voucher, right?

    No. If it’s defined in terms of care provided, then there’s substantial uncertainty in predicting what it’s going to cost in 2030 to provide that level of care. If it’s defined in terms of dollar value, there’s substantial uncertainty in how much coverage/care can be provided for that dollar amount. The Ryan plan takes the risk of cost growth off the government by dumping it on seniors (especially poor ones, who are least able to absorb an unexpected cost increase).

  11. The baseline scenario position is that an “oligarchy” has taken over the financial system. The same might be said for the U.S. healthcare system.

  12. It seems a no win situation where unspoken words are “Rationing” and “Responsibility”.

    Rationing by order of affordability to get comprehensive coverage for folks that are not bankrupted as result of medical expenses; otherwise, rely on charity for their medical needs.

    Responsibility by Corporations, Government and Individuals to understand that they are paying for uninsured whether they like it or not. That prevention is best and most cost effective way to decrease medical costs and there is absolute no incentive to do that under the current and proposed systems. As far as expensive drugs and medical procedures are concern — unless there is an outcome vs cost analysis — there is no mechanism to control those costs.

    It seems like a monster of our own creation and absolutely nobody is really talking about in USA.

    …And the band plays on…

  13. anandopadooda

    The whole health system must be established in terms of human rights, not dollars. You can’t be given a voucher for 32% of your human rights.

    Costs must be controlled, yes– by rationing the more expensive treatments, recruiting less expensive practitioners, and perhaps attaching “care hostels” to clinics for people who need an overnight stay but don’t require full-spectrum hospital services — but the bottom line must be care, not accounting. It is because we have the dollars-first mentality that hospitals are run FOR PROFIT — and insurance accountants are deciding who gets treatment and who does not – for benefit of stockholders. ( Talk about your ‘death panels” ! ) Such a system can NEVER provide satisfactory health care.

  14. CBS from the West

    “The baseline scenario position is that an “oligarchy” has taken over the financial system. The same might be said for the U.S. healthcare system.”

    Yes and no.

    Yes, in that the regulatory process for the health system has been captured by the industry.

    But it is not an oligarchy in the etymological sense, whereby “olig-” means “a few.” The health care system was, until a few decades ago, a cottage industry. While it has consolidated considerably since the 1980′s, there are no health care organizations that even approach the size and influence of Goldman Sachs or JPMorgan-Chase. Some of the health insurers are parts of giant financial corporations–but their health insurance divisions are generally small potatoes within that corporation, and, in many cases are actually money losers. There are some corporate giants in the drug industry, but again, nothing that approaches the size of the big banks.

    That is not to say that they do not wield enormous control within the pertinent areas of government. But they do so more through organization than individually. The health industry trade organizations are very well organized and they are very aggressive in their lobbying and political involvement.

    Also, whereas the typical voter has a neutral or unfavorable impression of financiers, the same people think of their personal doctor when they think about the health care system–and thereby tend to have favorable impressions. And whereas what financiers do is somewhat mysterious and opaque to the general public and possibly nefarious, the work of the health care industry is widely perceived as truly doing God’s work. The industry has effectively tapped that enormous vein of goodwill in its disinformation (aka public relations) campaigns in the past. Most of the public has no idea how much health care is useless or harmful and how many treatments are simply churned for profit.

  15. In some poor countries costs have been controlled very effectively and yet basic decent care is available for all. In some places, family and friends even bring in meals to the patients. And of course the wealthy get the extras only they can pay for, and the best doctors get the bigger incomes. But no one is left “uninsured” and with no care whatever. We need to take lessons from places like Costa Rica and Cuba.

    I suspect there may be a deeper, uglier game going on, a divide-and-conquer game, a genocidal subtext like we witnessed in the system’s handling of Katrina. Why else not make practical, realistic health-care systems like other countries have done?

  16. I think you have the choice all mixed up: We have two choices on Medicare – cut spending or increase taxes. Let’s break those down.

    Scenario A: An increase in taxes would result in less investment — and as a result you would have lower economic growth and lower wages.

    Scenario B: A reduction in spending would result in more investment — and as a result you would have higher economic growth and higher wages.

    Under the “higher taxes” scenario, total medical spending as a percentage of GDP would be higher.

    Under the “lower spending” scenario, total medical spending as a percentage of GDP would be lower.

    The easiest way to get there is to add a provision to the Ryan voucher plan that calls for the establishment of Medicare Savings Accounts, where people can save up to 5% of their income for future Medicare premiums.

    Instead of making contributions tax-deductible, the Federal Government should match 20 – 25% of every dollar contributed; this would make the savings vehicle progressive, since lower-income bracket account-holders would get the same benefit as upper-income bracket account-holders.

  17. You have missed the most obvious and critical issue in terms of both controlling costs and improving outcomes…getting the patient back into the decision process on both counts.

    As usual, both sides have trotted out extreme statements to make this into an all or nothing issue.

    We simply cannot long provide for unlimited open-ended care for everyone’s “health human rights” unless you want to bring the entire economic system down (perhaps that is anandopadooda’s preference… then we’ll go back to a communal, agrarian existence where we provide for each other without government’s involvement).

    Likewise, we cannot make healthcare decisions based solely on economics.

    Health care costs continue to rise more rapidly than most…whether paid for by Medicare or by employer provided insurance…because the end user has no direct and obvious stake in controlling costs and little options in terms of choice. Until the patient is again part of the payment process, he will not care how many tests are ordered or whether the inflated bill that is sent to, but not paid for by him, is accurate.

    Better healthcare is not simply a case of providing more preventive care at younger ages…several rigorous long term studies have been unable to find a link between long-term preventative care and better longevity/health outcomes.

    Nor is it just an issue of providing more, less expensive primary care treatment options. The Massachusetts experiment has shown that ER usage has actually gone up among those who received covered under the plan…it is simply easier to walk into an ER and get treatment when needed rather than investing time in unpleasant regular checkups and preventative medicine.

    The Ryan plan at least does something to get the patient involved in the spending decision…probably not enough but at least it is a step in that direction.

  18. As a self-insured person, I am the owner of an HSA plan – best we could afford – and it sucks. $500 a month to pay the first $7000 in health care expenses for my family. We make it work by diminishing our trips to health care providers. (As did many respondents in the recent Rand survey.)

    I have a young family. No one has cancer or needs multiple prescription products to help manage pesky “pre-existing conditions.” We have two working professionals in the family who earn income to pay for our health care.

    The elderly are different – many of them need hip replacements, glaucoma meds, high-blood pressure meds, etc. and so on. So under Ryan’s plan, the elderly folks – who are retired and living on a fixed income – are going to use the voucher to pay for 32% of their health care and the fixed income seniors will be responsible for the rest? How will they afford it?

    Does Medicare currently ask patients to pay for 68% of their health care?

  19. Its not actually a voucher but it seems something fascinating and an offer which should be availed.

  20. @anandopadooda

    What you stated makes a lot of sense. Why can’t there be 2 tiers of health care?

    It seems to me like the rise in costs is mostly due to an increase in the quality and technology of care. If we hold the level of care constant over a period, my guess is that healthcare costs may be relatively constant, or even go down (as name brand drugs go generic, etc).

    Much like pharmaceuticals have a very high initial research cost, general healthcare is much the same way. The latest, cutting edge procedures will cost a lot of money. The simple fact is not everyone will have access to them, but there will be a trickle down effect and eventually they will.

    Someone has to fund the very risky and costly research, but in the end, everyone will benefit. I think the sense of entitlements that everyone must have “the very best” in healthcare is understandable, but not practical. Healthcare can be improved for all, but it has to be done in a sustainable and realistic way.

  21. Mother Theresa’s Missionaries of Charity picked up dying people from the streets of Calcutta, bathed them and dressed their sores and fed them some rice and tea, and gave them a cot with clean sheets. And spoke kind words to them as they were dying. What did that cost?

    How many of our old and sick will die miserably, alone in a room without even this kind of care, all because we cannot afford their “treatment” ?

  22. there is a logical connection missing here – that the voucher a low wage earner gets is more then the 2.9% they put in

    “n other words, when you convert Medicare to a voucher program, it becomes largely just a redistribution program. Low wage earners will do better than they would without the voucher program and high wage earners will do worse”

  23. The Ryan plan seems to run afoul of Amartya Sen’s famous premise that that famines do not occur in democracies. ”No famine has ever taken place in the history of the world in a functioning democracy,” he wrote in ”Democracy as Freedom” (Anchor, 1999). This, he explained, is because democratic governments ”have to win elections and face public criticism, and have strong incentive to undertake measures to avert famines and other catastrophes.’ Lack of health care, especially for politically active seniors, is a catastrophe. Sen’s premise explains why developed democracies provide health care, including the U.S.’s piecemeal system, and why the Republicans passed the Medicare Plan D prescription drug coverage in 2003. Electoral politics trumps ideology every time.

  24. Main Street, my guess is that somewhere government accountants have estimates of how much the government will save because millions of elderly will not be able to pay their 68% share — so vouchers will not even be used up. Probably there are even estimates as to how many of the untreated will die sooner and save lots and lots of pension $$.

  25. wafa,

    Medicare as it is currently devised may redistribute money, but it does so as an insurance plan. All insurance plans redistribute money, from the lucky to the unlucky. That’s why we have them.

    So while it’s true that Medicare is redistribution, it is not “just” a redistribution system. The redistributive element is pretty trivial. The reason Medicare works is that it’s insurance.

    One point to the voucher program, pretty clearly, is that it sends money for medical care through private insurance firms before paying for care. That’s why the CBO determined that Ryan’s system would cost more than Medicare – because overhead costs are higher in private insurance firms. So, less of every dollar for medical treatment, more of every dollar for administrative costs and a new category of money diverted from medical care – private profit. This is just another privatization effort, in a market that is notoriously lemony. Really a bad notion.

  26. Vouchers are something people will sell on the black market. In other words, it is the destruction of medicine for sure and certain.

  27. Kwak provides a false choice. One can have universal care at 10% of GDP spending levels. Kotlikoff’s outline follows and can be found at the link below.

    This austerity program is part of the neo-feudalism being practiced through the current two-headed one party that is of the 1%, by the 1% for the 1% (h/t Stiglitz).

    http://www.thepurplehealthplan.org/node/2

    Principles of Healthcare Reform
    All Americans need a basic health plan and should be free to purchase supplemental health insurance coverage.
    Healthcare should be privately provided with people free to choose their doctors and hospitals.
    All who can pay for their health plans should do so through a combination of existing tax payments and health plan co-payments.
    The government’s projected healthcare costs must be strictly capped and affordable on a long-term basis.
    Health plans should be affordable regardless of one’s pre-existing health conditions or risk.
    The system must provide strong incentives to prevent overuse of healthcare services and discourage bad healthcare behavior.
    Medical malpractice reform is needed to keep providers from engaging in unaffordable defensive medicine.
    The Standard Plan
    All Americans receive a voucher each year to purchase a standard plan from the private-plan provider of their choice.
    Vouchers are individually risk-adjusted; those with higher expected healthcare costs, based on documented medical conditions, receive larger vouchers.
    Participating insurance companies providing standard plans cannot deny coverage.
    Each year a panel of doctors sets the coverages of the standard plan subject to a strict budget, namely that the total cost to the government of the vouchers cannot exceed 10 percent of GDP.
    Insurance companies providing standard plans contract with private providers to cover their plan participants.
    Americans choose doctors and hospitals included in the standard plan they choose.
    Plan providers compete and provide incentives to improve participants’ health and limit bad health practices.
    Plan providers offer supplemental plans to their participants and cannot deny supplemental insurance coverage to their participants.
    The government (federal and state) ends the tax exclusion of employer-provided health insurance premiums.
    Like all other Americans, Medicare, Medicaid, and health exchange participants are covered by the Purple Health Plan subject to appropriate transition provisions.
    The roughly 10 percent of GDP now spent or allocated by federal and state government on these and related programs, as well as on the tax exclusion of employer-provided health insurance premiums, is reallocated to help finance the vouchers.

  28. Maybe I am missing something but aren’t the vouchers going to be worthless. No one will be able to come up with the other 68% needed to redeem them.

  29. John Personna

    “‘That can be a voucher, right?’

    No. If it’s defined in terms of care provided, then there’s substantial uncertainty in predicting what it’s going to cost in 2030 to provide that level of care.”

    As we know, that is the current medicare. I think I’m offering incremental improvement with the idea that a voucher reimburses a smaller set of procedures … but perhaps that is a bigger deal in a universal care setting than a medicare setting. I suppose medicare has already pared back supported procedures to a minimum?

  30. Moses Herzog

    It’s my opinion that a large part of the problem started around the late 1980s or early ’90s when HMOs came into the picture. I would dare to guess that around that same time is when healthcare costs began to surge faster than inflation. I have no numbers to back that, that is just my sense, anyone is welcome to shoot me down if you have some good source for your data. I think when employers have you by the testicles for your health insurance it eliminates the true competition component. Your employer has power with the economies of scale to entice the insurance companies for kickbacks, and you save more than you would buying an insurance policy independently. This forfeits all your bargaining power to “walk away” to the employer. It’s really “lose/lose” for the worker. And actually if you look at it, it’s exactly the same thing they do with your 401k. Your choices are limited to about 25 funds if you’re lucky (and you can’t go outside the choices your employer’s Plan managers choose, unless you do a rollover from 401k to an IRA at a brokerage). Many people want matching funds, and are afraid to manage their own money. So you lose all power to move your capital, outside the choices your employer’s 401k planners give you, and become a “captive audience”. It’s not real/true free market, in other words.

    I know quite a few older people, some my relatives, the only reason they still work into their mid-60s age, is only for the health benefits. They don’t care about the salary, but if they didn’t have the health plan to cover pills, eye glasses, medical procedures, the costs would wipe them out in a period of a few months. So guess what??—their employers treat them like a sack of s.h.i.t. Of course, anti-union jerkwads like Gov. Walker of Wisconsin would never address this issue, as from Republicans view the employer is always right.

  31. Let’s face it: smokers are heroes. They pay into Social Security and Medicare their whole working lives, then considerately die before collecting much in benefits. They hardly ever outlive their money to the degree that they have to be maintained on Medicaid in nursing homes.

    Why don’t we just admit it? We need folks to make those unhealthy lifestyle choices that will keep them working and paying taxes through their prime, and then kill them before they reap too many government beneifts.

    OR, we could just be like other industrialized countries, cover everyone with comprehensive Medicare for All, and get our per capita costs in line with those other nations: about 50 to 60% of our current costs.

    But that would be a blow to the vast, bloated corporatocracy that Americans persist in confusing with government.

  32. Many talk about controlling costs, but never address how, or resort to some politician or bureaucrat setting prices by fiat. 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. With our current insurance structures HCPs don’t compete on price, they compete on appearances, fancy waiting rooms & exam rooms, all the latest gadgetry, etc, which only add to costs.

    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 post their reimbursement amounts.

    These three changes would introduce price 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 at least one cost.

  33. I would only consider vouchers useful if those who issued them were competent and trustworthy.

    The U.S. federal government has not demonstrated either quality to my satisfaction.

  34. Many poor people will be unable to pay the difference between the voucher and the cost of the health care procedure, but they could sell the voucher to someone else who could buy it for less than it is worth. The poor person gets a few extra bucks but no health care. The wealthier individual gets to buy his health care at a small discount by using several vouchers.

  35. LAS, under Ryan’s proposal, no beneficiary will ever actually hold the voucher in his or her hand. The voucher simply represents a pass-through of funds from the government to the private insurer (premium support). Something like this is happening now with Medicare Advantage and Medicare Part D.

  36. Donald L. Anderson

    Cut?

    Well, cut a war. Or two, or three. There resides the needed money.

    Why cut SS, Medicare, health, education, infrastructure, etc?

    The wars support Militarism. They DO NOT defend us. Well, they do defend — the defense industries.

    Get our priorities straight!

  37. One of the problems that hospitals face is the cost of treating anyone who shows up at the door, even if that person doesn’t have insurance.

    Krugman proposes a government run medical care system option, similar to the VA.

    How about we set up a “separate but equal” medical care system instead? People without insurance would have to use those facilities, and Republicans would finally be happy because they wouldn’t have to think about the poor.

  38. For someone entering the workforce today, the initial voucher at age sixty-seven will pay for far less than 32 percent of her health care costs — and that percentage will continue to fall — because the vouchers are indexed to the CPI, not to GDP, let alone health care inflation.

    A really good way to lose people is to repeat two sig-fig predictions about financial models 45 years into the future. I’m not so sure ten years is reasonable right now.

  39. Brenda Vinall-Mogel

    It would seem that if we are gong to go to a voucher system then we might as well go to a first real job at age 26 just for argument to grave system of insurance. Under my plan a person can sign up for insurance at their first job with a chance to change insurance companies, if there are better deals until age 30. At age 30 you are stuck with the private insurance company until death. The insurance company cannot let you go for any reasons and since most insurance costs come in the later years of life when people are usually on Medicare the government can help pay for premiums in the retrired years with a voucher, while the insurance company has been able to most likely gain income while the person is under the age of retirement. Insurance companies must take that portion of insurance that is not used and bank ( a possibly poor word for this group) it for a later date while a persosn is young. IF for any reason a person is unemployed the government can give out vouchers to maintain this insurance with the understanding they will be paying in again once they again gain employment. there is much more to this, but I think most can figure out where the savings with this type of a program would be in the long run for taxpayers and the government. Again it comes as a compromise between the Dems and the GOP systems. If a person ops out of insurance at a young age they then receive less in their golden years from the government interms of voucher payments.

    Any honest questions on this can contact me here.

  40. In response to the anonymous comment about Amartya Sen’s premise, how much tweaking of the definition of “functional democracy” is required?

    For example, do you exclude the Bihar famine of the 1960′s by saying that India (or Bihar state itself) was not a functioning democracy? If so, then how many societies in the history of the World ARE (or WERE) “functioning democracies”.

  41. RT says: “How about we set up a “separate but equal” medical care system instead? People without insurance would have to use those facilities, and Republicans would finally be happy because they wouldn’t have to think about the poor.”

    You may recall that separate but equal was declared unconstitutional in Brown vs. the Board of Education. Nevertheless, we already have a “separate but unequal” medical program for the poor. It’s called Medicaid. Aside from the fact that it is an unfunded mandate that is cutting services to patients and bankrupting the states, there’s another big problem: the tens of millions of middle class Americans who are uninsured don’t qualify for Medicaid.

    And what would lead you to believe that Republicans “think” about the poor?

  42. the Ryan plan is nothing but a scam. the vouchers may exist but there won’t be any insurance available for purchase (unless you consider the coverage for hang nails sufficient for the elderly). insurance companies have to make money. failure to do that leads them to bankruptcy. they quit offering insurance to the elderly for a very simple reason. they couldn’t make any money doing so. the way they work pretty simple. the collect premiums and invest them. they control their costs by only covering those they can afford to so for, and only over coverage for things they can afford to do so for. they cannot have ratio claims to policy holders be any where near 1, it must be a lot less (maybe .05 or lower). the elderly will have lots of claims, the body breaks down as we get older, and while that can be influenced by your habits, some are genetic and nothing you do will change them. and unless you wish to die early, you want to be among the elderly at some point. and you really want health care then. the voucher program won’t accomplish this at all, its likely that since there is no market, there won’t be any redemption of the vouchers either (unless the GOP allows for sham insurance. which they will likely do as a reform at some point). will this impact all but the top 1%? yes. the rest of us will wonder why we ever want to retire, since we will be unable to survive long. but it fits the GOP model, they really only care about the top 1%. after all, thats who get the tax cuts funded by their proposal

  43. All this misses the basic problem: The US health care system is inadequate to the needs of its people.

    There is and has been a chronic shortage in the supply of health care. Basic economics tells us that, like any shortage, this leads to higher and escalating prices. Over 40 million people are with out any coverage at all, and still there are inadequate services for the rest of the popluation. This shortage has been engineered by the players in the health care industry, insurers, pharmaceutical companies, hospitals, the AMA, medical supply companies, to keep prices high. As a result of AMA policies, for instance, there are fewer medical schools now than there were 100 years ago. By the system devoting resources to high priced and dubious treatments, inadequate resources are left available for more moderately priced and better tested treatments. By denying coverage to the poor, they are forced to expensive emergency rooms for treatments, straining resources there. Many resources are devoted to expensive and inefficient overhead. The government, by dealing ineffectually with the situation, at great expense to itself, allows it to remain in place.

    The other developed democracies have adequate and more than adequate health care systems. Some of this is by restricting treatments, but mostly it is simply having enough of what is needed.

    Were the US healthcare system adequate to its people, the resulting competition prices would drive
    down prices, and the government might have to intervene to keep prices up, instead of having to restrain them.

    That the dabate has taken the form it has, is evidence of the established interests’ ability to disinform, and protect its interests, even if it bankrupts the country.

  44. CBS from the West

    @Greg:

    “All this misses the basic problem: The US health care system is inadequate to the needs of its people.”
    Couldn’t agree more.

    There is and has been a chronic shortage in the supply of health care.”
    No! How can you say that given that we spend twice as much per capita on health services as the average industrialized country, and that is driven by volume of services more than by prices? We have a serious _oversupply_ of health care services. But 1) they are the wrong services, and 2) they are directed to a part of the population are are seriously overtested and overtreated while the other part of the population gets nothing (except some emergency care, and that at the cost of bankruptcy.)

    [Digression: it rather reminds me of the world situation with respect to food production. The world produces in aggregate more food than the entire world population needs. But most of it is being consumed in a subpopulation that is increasingly obese, while there is still mass starvation in other parts of the world. I wonder what historians will say about that a century from now.]

    This oversupply is quite toxic financially because unlike most other goods and services, this supply is able to create its own demand. Remember, except for the initial decision to seek health care, patients do not generate demand for services–their health care providers do that. And there have been studies showing that doctors adjust the volume of services they provide so as to maintain their incomes, notwithstanding changes in the prices they can extract from insurers and notwithstanding changes in the supply of physicians in their areas.

    As Uwe Reinhardt wryly said many years back, the challenge facing the US health care system is how to ration the health care surplus. It is even more the case today.

  45. The debate really is about the dismantling of the New Deal programs of the 1930′s and the Great Society programs of the mid 1960′s. Republicans want it all, and are fast on their way to securing it for their benefactors. They’re all stooges.

    Vouchers will lead to the health-impoverishment of millions, and many will die. It’s an ugly return to days when old people couldn’t get insured, and all you had to look forward to is tough luck and a death bed.

    These people are nihilists, and have nothing to offer, except degradation, impoverishment, serfdom, and the poor house.

  46. I honestly can’t see how vouchers work for aged people. Or to put it another way – how private insurance can work with the aged (and vouchers imply private insurance).

    Let’s say you’re 70 or whatever the age of retirement is. Now you go to an insurance company and say you want private insurance. Well, the private insurer is going to look at you and say, “Damn you’re old, you’re pure living liability to us.” Thus they are going to do one of three things:

    1) Rider out everything that could make you honestly sick, which equates to having no insurance.
    2) Charge you for what they believe your potential liability is (which given all the possibilities is in the hundreds of thousands of dollars and you will not be able to afford).
    3) Refuse you insurance.

    The net effect regardless, unless you are rich, is you are uninsured.

    The only reason insurance works is because risk is pooled. The less risky offset the cost of the more risky. With cars some of the risk can be transferred directly to those who engender the most risk (you drive bad, you pay more), but with health care we all get old, we all get sick. No matter how well you take care of yourself you’re odds are high of needing expensive care. Yes, some lifestyle changes early in life can improve outcomes, but the vast majority is simply the roll of the dice (not to mention, being stupid as we all are in your 20′s should not lead to lack of care when you’re old).

    Unfortunately private insurers make every effort to not pool risk. They select for the most healthy where at all possible and charge commensurately for those who aren’t healthy (or are at risk of not being so – which all old people are).

    Moreover one does not pay into a common pool – you could spend 20 healthy years with one insurer and practically the moment you change them find yourself unhealthy. In that case there is no prior “savings” in the system to reimburse you for your now ill health. Frankly even when staying with the same insurer there is no savings – “losses” are generally viewed as if no history (or prior “investment”) existed.

    In short, the whole private system doesn’t work for older people and never will. Frankly the whole system is a bad design – we should be pooling both young and old together for maximum cost sharing. As it is private insurers get the bulk of the excess income toward profit that might be able to instead be reinvested in higher risk categories and in particular offset the older insured in say Medicare. In that sense Medicare represents a high risk pool that allows private insurers to glean more profits from the more relatively healthy.

  47. I should add one last point – I’m really not sure that the Ryan thing was an honest proposal period (and I mean that even outside the fact that it’s filled with statistical lies).

    I sincerely wonder if it wasn’t a sort of “shock and awe” designed to distract from the true agenda of simply cutting the budget. That Ryan had no intention of it ever being honestly considered, but rather a way to make other cuts pale in comparison.

    In short sort of like this:

    Bad Man: I’m going to beat you and kill you.
    Victim: Oh, no, please, please no!
    Bad Man: Ok, I’m just going to beat you.
    Victim: Oh, ok, at least I live!

  48. Herbert Wetherby

    @ Woop: Vouchers will lead to the health-impoverishment of millions, and many will die. It’s an ugly return to days when old people couldn’t get insured, and all you had to look forward to is tough luck and a death bed.

    I guess in todays soft economy that would be a bit of a problem.

  49. @CBS from the West

    OK. How about “giant vampire squid”. A medical delivery system that is sucking 16% out of GDP and trending a 10% (?) rate in growth.

    ps: I like your “scientific” approach based on the facts (rather than ideology).

  50. @ CBS from the West:

    http://en.wikipedia.org/wiki/Comparison_of_the_health_care_systems_in_Canada_and_the_United_States:

    “…
    When added to the population of uninsured (approximately 16% of the U.S. population), a total of 40% of Americans ages 18–64 have inadequate access to health care, according to the Consumer Reports study….

    …Across the country, liability insurance for obstetrician-gynecologists is becoming unaffordable or even unavailable,” said ACOG President Thomas Purdon, MD. The situation is particularly worrisome for rural areas, where physicians and care are often already in short supply….”

    +++

    “It’s the Prices, Stupid: Why The United States Is so Different: Health Spending Versus Health Care Provision Medscape (2002)” http://www.medscape.com/viewarticle/452954_5

    “…in 2000 the United States had fewer physicians per 1,000 population, physician visits per capita, acute care beds per capita, hospital admissions per 1,000 population, and acute care days per capita than the median OECD country. These simple comparisons suggest that Americans are receiving fewer real resources than are people in the median OECD country…

    …The researchers estimated that Americans paid 40 percent more per capita than Germans did but received 15 percent fewer real health care resources….” (but more than GB, which doesn’t help my point, and helps yours.)

    The article goes on to discuss the effects of monopoly power on prices. Monopolies, cartels, and such derive their “rent” by creating shortages in the goods and services they supply. Granted, here they also can create ‘shortages’ by boosting that demand.

    We have more MRI and CT machines, but misapplication of resources leads to shortages where those resources should be applied. Japan has even more, but they also have lower costs because they spend more on preventative medicine.

    You claim, I think, that shortages are purely organizational. I claim they are both organizational, and intrinsic: That the current medical industrial cartel has created a real shortage to buttress their rent. I would be surprised if they didn’t. The total supply is less than adequate to meet demand, however that demand is generated, and even if that demand were, in a sense, minimal, ie just what everybody needed. Trying to insure everybody, or 95% anyway, a la Obamacare, with resources allocated as they are now, will skyrocket prices.

  51. Herbie, I don’t ever know what the heck you are talking about. :)

    I wasn’t in NSA as a cryptographer, BTW.

  52. I know you tend not to agree with this, James (on the notion that people don’t take medical care they don’t “need”), but we simply have to make people put some “skin in the game” if we are to control medical costs. True, some people who are at the edge of what we, as a society, determine to be the minimal level of subsistance, cannot be required to pay more for medical care, and it is nigh impossible to make cost a consideration in their demand for medical services. I would say put such cases under the same system as veterans, which Paul Krugman praises so highly.
    The other solution is rationing of medical services for everyone (as is done in the U.K. and Canada, for example). Those who want to pay more for services not supported by the state would have to go outside the country. U.S. doctors, the most highly paid by far in the world, would abhor this solution.

  53. I’m just a layman artist/businessman but hey, here are my thoughts.
    It seems to me that the “business” of health insurance has a moral and ethical component that other businesses do not. Considering profit while providing for the heath and welfare of our citizens has to me, some obvious problems. It reminds me of the lifeboat. Only one more person can be added to the boat or the boat will sink. In the cold water are an 89 year old billionaire and a 10 year old middle class kid. Who do you let aboard and why. These are the decisions that the market is ill equipped to inform. The very idea that you can make life and death decisions based on someone’s ability to pay seems anathema to me. In fact, for a party that prides itself on people taking responsibility for themselves, Republicans seem to have no concept of our responsibility to each other as a society. Let me be clear we cannot afford to give everyone, everything that modern medicine can provide, but making these decisions based on ability to pay removes any personal or societal responsibility. You just say, he/she can’t afford it or find a loophole in the coverage to avoid paying. The money absorbs the responsibility and insulates society from making these difficult life and death decisions.

    I saw a fascinating Frontline piece about the different health care systems of the world. Germany has an interesting blend. They have non profit health care insurance companies that also sell other insurance products for profit. They are motivated to give good service to their health care customers as a way to sell them other for profit products. Can you not take 10% to 15% at least off the top if you eliminate profit and advertising? I also wonder what type of coverage insurance employees get and compare that to teachers, firefighters of Wisconsin and the rest of us.

    The Invisible Hand has no fidelity to the conscience or the integrity of a country. We might also ask doctors why they are in this “business’ in the first place.

  54. The fastest way to control the cost of healthcare is to reduce the number of grossly overweight Americans.

  55. Both Medicare and Social Security were created when Americans lived fewer years on avarage than we do today, so any adjustment to either plan should start with the simple idea of raising the age at which one becomes eligible for these programs. As others have already commented, minimum eligibility should vary with life experience and circumstance.

    With specific respect to Medicare, the idea of replacing direct payment with vouchers is wrong on multiple counts. Most importantly it ignores the obvious fact that we are all going to die, and with the exception of those of us who drop dead with no warning, most of us will incur the vast majority of our lifetime medical expenses in the last few years and months of our lives.

    There is no business model that can make end-of-life insurance profitable. How we choose to pay end-of-life costs is as much of a social policy decision as it is an economic one. Private insurance companies can manage the costs associated with normal distributions of payoffs to insured parties, but cannot possibly manage the fat-left tails of the entire distribution of health care outcomes. (Unlike normal business risks, there are no fat right tails – we all die.)

    Only the government can incur those losses if, as a society, we agree that we should not just put our terminally ill people into hospice as soon as they consume their maximum allowable expenses from their private insurers.

  56. A controversial thought, so please don’t shoot the messenger.
    Currently our “Entitlement Programs (Social Security/ Medicare/ Medicaid[?]” have ~approx. 3:1 +/+ contribution to the fund, whereas in the beginning it was ~approx. 15-17:1, so were in a bit of a pickle, aren’t we?
    Perhaps we should “Open-Up” our immigration laws to allow our borders to become more accommodating to South America (Mexico), and Foreigners? This would increase revenue and human resources which currently are a weak link in our economy (note that the market cycle will get better) and perhaps…just perhaps if the laws are prepared properly and well thought out we would in 5-10 years have a ratio of 5:1 or even 7:1 contributing to our inevitable depleting funds.
    Thankyou James and Simon

  57. CBS from the West

    @earle, florida

    Congratulations to the messenger!

    This is the crux of the problem: the dependency ratio is getting very high. And now matter how we reshuffle dollars through taxation/re-distribution schemes, the bottom line is that we are approaching a time when a relatively small number of people have to provide for a relatively large number.

    So logically there are three possibilities: we decrease the number of dependents, increase the productive capacity of the producers, or we increase the number of producers.

    The first of these is the Ryan plan and its equivalents: just stop supporting them and they’ll go away/die off/ who knows/who cares.

    The second, increasing our productive capacity, is what we should have been doing for the last half century instead of “investing” in the Wall St. casino. But it’s too late to do that now.

    That leaves a third solution: get more producers into the system. The imperial approach to this is to just conquer other economies and appropriate what they produce. The modern version of this installs “independent” regimes that make sweetheart deals with us. See Iraq, Afghanistan for how well this works. But another approach would be to invite young productive people to join our nation. Thus, Mexico the 51st state–or something like that.

    I actually raised this idea in a comment to a different topic several months back (maybe even over a year ago). Given how contentious the whole topic of immigration is, I, too, expected to get “shot.” To my surprise, nobody responded.

    Well, I’m glad to know that somebody else is thinking this way. Who knows, maybe in another year, there’ll be a third person who thinks of this!

  58. All of this talk seems to miss one important variable. The cold hearted greedy children will ignore their parents and leave them to die without insurance. Then the other half mostly older single women like me who have been impoverished caring for a much loved disabled mother. I am poor now because of the lack of assistance for the care of a disabled mother. My father divorced her and brother lives 2000 miles away. I have an MBA but required to be at home 22 hours of the day. She will live another 10 years. Then I will have to be taken care of by the government or left to die in the streets. The other choice for my disabled (not elderly) mother according to my brother is to drop her off into a dirty state run home for the next 10 to 15 years and then leave her. Then I am suppose to be happy and guilt-free and go to work in a high power demanding capitalistic system and when she calls crying because their is no one to help her at the old peoples home just simply not answer the phone. Men have cornered their female siblings and impoverished them due to their cold greedy hearts.

  59. Isn’t the elephant in the room the fact that healthcare in the US sucks (for most people) and is ridiculously overpriced? I find it amazing that no-one seems to want to address the Orwellian bureaucracy that everyone has to fight through in order to get any kind of medical service. The system is totally opaque to the consumer resulting in confusion, massive administrative costs and all too often, heartbreak for those who need help.