Tag Archives: Medicare

Vouchers vs. Premium Support

Posted on December 23, 2011 by | 15 Comments

Uwe Reinhardt has a very clear post on the difference between vouchers and premium support and how it applies to the Ryan-Wyden plan. You might may say that the labels are arbitrary, but there is still a substantive difference between the two in where the risk lies.

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Can We Afford Medicare?

Posted on December 20, 2011 by | 32 Comments

By James Kwak

The conventional wisdom, repeated endlessly by the so-called serious people, is that we can’t afford traditional Medicare and hence it has to be radically overhauled (see Ryan-Wyden for the latest round). But I’ve never seen a convincing argument for why we can’t afford traditional Medicare. Yes, costs are rising as a share of GDP. But in principle, to make the case that we have to reform the program, you would have to argue that revenues can’t rise enough to keep pace—which in most cases, just shows that you don’t want revenues to rise enough.

More specifically, you have to know how big the Medicare deficit is and how fast it is rising. By my calculations, relying mainly on the 2011 Medicare Trustee’s report, the deficit was 1.7% of GDP in 2010 and will be 3.0% of GDP in 2040. So the argument that we can’t afford traditional Medicare relies on the proposition that this 1.3% of GDP is the straw that will break America’s fiscal back. Needless to say, this is nonsense, especially since other tax revenues not related to Medicare will be rising over the same time period, at least under current law. For all the details and sources, see my latest Atlantic column.

Medicare has its problems. But we have choices.

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Understanding the Budget Deficits

Posted on July 25, 2011 by | 34 Comments

By James Kwak

Today’s Atlantic column is a follow-up to last week’s on the size-of-government fallacy. In the column, I break down the projected 2021 deficit into three components: Social Security, Medicare, and Everything Else. (It’s important to use 2021, or some year out there, because most of the current spike in deficits will go away as the economy recovers.) I wanted to explain here how I came up with the numbers and talk a bit more about this approach.

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“The Elderly” for Beginners

Posted on June 17, 2011 by | 52 Comments

By James Kwak

As the AARP says that it is open to modest cuts in Social Security benefits, it’s worthwhile asking a more fundamental question: are Social Security and Medicare programs that benefit the elderly?

The answer may seem obvious. After all, the bulk of Social Security Old Age and Survivors Insurance benefits go to people over 62, and almost all Medicare beneficiaries are over 65. So it’s often observed in passing that our long-range budget issues are the product of transfers to the elderly. For example, in Restoring Fiscal Sanity 2005, Alice Rivlin and Isabel Sawhill write, “These big programs, which benefit primarily the elderly, will drive increases in federal spending in the longer run” (p. 36). Other commentators have occasionally argued that the problem is that the elderly have become too powerful and therefore claim too large a share of government spending, especially compared to the very young.* When you add to that the frequent complaint that, by running budget deficits, we are imposing burdens on our grandchildren, this age-based inequity seems even greater.

But the problem with this framing is that “the elderly” change every year. There’s nothing inherently wrong or unfair with a program in which you pay insurance premiums while you work and collect benefits when you retire. Saying such a program benefits the elderly is like saying that life insurance doesn’t benefit the insured, only the beneficiaries: it’s true in a trivial sense, but people still want and buy life insurance anyway.

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When You Don’t Need To Worry About Facts

Posted on June 7, 2011 by | 22 Comments

By James Kwak

Masquerading behind an invocation to “wisdom” in the title, David Brooks today finds his false equivalence (see here for another example) by comparing the the two parties’ approaches to Medicare: the Democrats, he says, favor “top-down centralized planning” while the Republicans favor the “decentralized discovery process of the market.”

David Brooks swallowing Republican talking points whole is not worthy of note, so I’ll just point out one: he calls the Ryan Plan a “premium support plan,” despite the categorial denial by Henry Aaron, the creator of the premium support idea.* But it’s marginally more interesting to point out Brooks’s finely-honed rhetorical dishonesty.

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What’s Left of the Ryan Plan?

Posted on May 25, 2011 by | 32 Comments

By James Kwak

Jennifer Steinhauer in the Times reports that some Republicans are running away from the Ryan Plan (you know, the one that changes Medicare from a health insurance plan to an underfunded subsidy), while others are trying to figure out if they should support in order to gain Tea Party votes. As policy, of course, it never had a chance to pass the Senate or of being signed by President Obama (and every Republican staffer Politico could find agrees), so it was pure political theater from the start. As Paul Krugman points out, the goal may have been to win over the pundits — a group that is vastly more concerned with the deficit than ordinary voters — but even that failed. (They got Jacob Weisberg, but he backpedaled furiously, and they got David Brooks, which was mainly amusing because then we got to watch Krugman trying to observe intra-Times decorum by not going after Brooks by name). Now Republicans are wondering if the loss of a Congressional seat in a conservative New York district was Ryan’s fault.

But while I’d like to think that the nation is recovering its senses, at least on what Republicans mean for Medicare, I’m not optimistic. Brad DeLong put it well:

“the political lesson of the past two years is now that you win elections by denouncing the other party’s plans to control Medicare spending in the long run — whether those plans are smart like the Affordable Care Act or profoundly stupid like the replacement of Medicare by RyanCare for the aged — sitting back, and waiting for the voters to reward you.”

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My Medicare Deficit Solution

Posted on April 13, 2011 by | 58 Comments

By James Kwak

David Brooks, perhaps realizing that it was a bad idea to swallow a politician’s PR bullet points whole, is now backpedaling. The Ryan Plan, which he originally hailed as “the most comprehensive and most courageous budget reform proposal any of us have seen in our lifetimes,” now has the principal virtue of existing: “Because he had the courage to take the initiative, Paul Ryan’s budget plan will be the starting point for future discussions.”

As I’ve discussed before, the Ryan Plan is just one bad idea dressed up with the false precision of lots of numbers: changing Medicare from a health insurance program to a cash redistribution program that gives up on managing health care costs. Here’s the key chart from the CBO report:

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Who Wants a Voucher?

Posted on April 12, 2011 by | 59 Comments

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?

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Medicare for Beginners

Posted on April 11, 2011 by | 46 Comments

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.

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Moment of Blather

Posted on April 5, 2011 by | 79 Comments

By James Kwak

David Brooks’s commentary on Paul Ryan’s “budget proposal” is entitled “Moment of Truth.” Brooks falls over himself gushing about his new man-crush, calling it “the most comprehensive and most courageous budget reform proposal any of us have seen in our lifetimes.” “Ryan is expected to leap into the vacuum left by the president’s passivity,” he continues.

Gag me.

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The Problems with Rivlin-Ryan

Posted on February 4, 2011 by | 72 Comments

By James Kwak

Uwe Reinhardt has a post about the Rivlin-Ryan Medicare Plan, which would convert Medicare into a voucher program for people currently under 55 and also fix the growth rate of the value of the vouchers at GDP growth plus one percentage point. The issue Reinhardt focuses on, and which I also blogged about a while back, is that health care costs have been climbing considerably faster than that, so over time the value of the vouchers will fall relative to real health care costs.

But another problem is that, at least according to the CBO’s summary, the Rivlin-Ryan plan doesn’t say anything about how elderly people will buy insurance. Today, the cost of Medicare is reduced by the program’s bargaining power with providers. which means the total amount spent by Medicare is less than the total amount that would be spent by all Medicare beneficiaries if they had to buy insurance on the individual market. A voucher system would push them into the individual market, which means that the amount they would have to spend would go up dramatically.

Now, it’s possible that the Rivlin-Ryan plan takes the Obama health care reform and its reforms to the individual market (including a prohibition on medical underwriting and the creation of exchanges for buying insurance) as a starting point. But that would be interesting, since Paul Ryan voted to repeal the Obama health care reform.

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Robert Samuelson Again

Posted on February 10, 2010 by | 67 Comments

Remind me never to open Newsweek again when I have real work to do. Robert Samuelson tries to play the tough guy yet again in his column, saying that we face either major entitlement cuts or major tax increases and we have to buck up and take it like real men. I agree that we need to do something about the long-term debt problem, and the sooner we come up with a solution the better. But this was what set me off: “There is no way to close the massive deficits without big cuts in existing government programs or stupendous tax increases.”

This leaves out the obvious and best solution: reduce the growth rate of health care costs. Democrats and Republicans differ on how to do it–the former put a large package of cost-cutting measures in the Senate version of the health care reform bill, the latter want to kill the tax exclusion for employer-sponsored health care (and some Democrats would be fine with that as well). But everyone knows that the long-term debt problem is a health care problem, we spend far more on health care than we get back in outcomes, and cutting health care cost growth is the key. If we don’t, then we’re completely screwed no matter how much we cut Medicare–someone has to pay those health care costs, and if we cut entitlements we’re just shifting the problem onto individuals. (Put another way, Medicare is largely a redistribution system–as Samuelson recognizes–and if you kill it, you haven’t done anything about the fundamental mismatch between aggregate income and aggregate health care costs.) You may prefer that politically, but it’s still not a solution.

Samuelson says, “Even with these cuts [proposed by him], future taxes would need to rise. Unless you’re confronting these issues–and Obama isn’t–you’re evading the central budget problems.” Does he not realize that health care reform was the centerpiece (now perhaps failed, but at least he tried) of Obama’s first year in office, and that Obama himself insisted that cost reduction was more important than universal coverage, to the chagrin of his own political base? Oh, wait. Samuelson doesn’t realize that health care is the central budget problem.

I’m sorry to belabor the point. You all know it. But apparently Robert Samuelson doesn’t.

By James Kwak

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The Republican Plan, II: You’re On Your Own

Posted on February 3, 2010 by | 52 Comments

In my previous post on the Roadmap for America’s Future, I discussed how the Republican plan is based on converting Medicare into a voucher program and then slashing the vouchers drastically relative to current Medicare spending projections, leaving seniors without the ability to buy anything close to what they get from Medicare today. In that post, I compared projected Medicare vouchers under the Roadmap to projected Medicare spending under current law. If you assume that, in the Roadmap world, the cost of Medicare-equivalent health insurance will be the same as currently projected Medicare spending, then people will die.

But, Paul Ryan would argue, the Roadmap is going to bring down the cost of health care, so the fact that we’re providing less support won’t matter. Put another way, he might say, Obama’s plan also counts on bringing down the cost of health care, so why can’t I make the same assumption? There are two problems with this argument.

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Medicare and the Public Option

Posted on August 25, 2009 by | 107 Comments

Simon and I have our latest weekly column up at the Washington Post. The topic is contradictions: opponents of the public option who bill themselves as defenders of Medicare, opponents of cost savings who support private health insurers, and so on. It’s also about a world without a public option:

Imagine health-care reform without a public option: Insurers have to charge the same price regardless of customers’ medical history; everyone has to buy insurance; and poor people get subsidies to help them afford it. From the insurers’ perspective, they get more than 40 million new customers, they subsidize the old and sick by overcharging the young and healthy (who have to overpay because of the mandate), and the government even pays people to buy their product. There are no new competitors (additional choices for customers), and there is no pressure to reduce costs. What could be better?

As we’ve said before, I think this is still far better than the current situation. Ezra Klein recently made the point much more forcefully. But still, reform without the public option could be a recipe for private insurers to charge whatever they feel like charging. Alex Tabarrok, not the first person you would expect to write a post called “In Defense of the Public Option,” writes:

Since escape via non-purchase will no longer be a potential response to higher prices, mandatory purchase will reduce the elasticity of demand giving firms an incentive to increase prices.  Moreover, in oligopolistic markets, a more homogeneous product can increase the ability of firms to collude.

I believe that health insurance reform will increase the market power of insurance firms and drive up prices.  In this scenario, the public option at least has a raison d’etre, although whether it actually fulfills it’s purpose is an open question.

By James Kwak

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