Can We Afford Medicare?

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.

32 thoughts on “Can We Afford Medicare?

  1. I agree with Mr. Kwak that we can afford Medicare, in the sense that it is necessary and important that we take care of our Senior citizens. And I believe (in some incarnation, with adjusting) Medicare is the best way.

    However, and it is a strong however, the system needs to be fixed badly. Am I referring to patients who show up at Emergency rooms and get treatment for free?? Am I referring to false claims of being handicapped, or elderly taking pills they don’t need??? Although all of those are problems, I don’t believe it is the biggest problem.

    I believe the biggest problem is false claims by doctors and insurance companies. And I think if people knew how often the example below happens at many different insurance companies, we would be shocked, and if this was rectified a huge % of the cost problem would be solved.

    What I want to know is, is Dr. Prem Reddy going to be prosecuted for this??? Or is Prem Reddy’s crime like the MF Global one where the perpetrator of the crime walks around free and is never charged or jailed???

    Where is the California Insurance Commissioner while Prem Reddy scams all of us?? Busy at a banquet with Dr. Reddy, reaching under the table for Dr. Reddy’s wad of cash in an envelope??? Or is the California Insurance Commissioner doing some TV advert telling people how “tough” he is on insurers as he allows monstrous rate hikes??? Or all of the above??

    This reminds me of the outstanding “tweet” by the ever-clever Nomi Prins “Gruesome Priorities: 4600 #ows protestors arrested stealing nothing, 0 Financial Firm CEOs arrested stealing trillions from global economy.”

  2. Tax and spend Kwak. I have no idea why you think gov’t is the solution when it has demonstrated time and again that it is not.

  3. We can afford Medicare if we choose to pay for it. It is a useful expense. The affordability argument is nonsense.

  4. A more universal question is can we afford the medical care system in the United States, both public and private? The overall system is full of perverse incentives and the like. Private insurance is also galloping upward in price and pricing folks out of insurance, as well as medical costs leading to bankruptcy. There do exist solutions that partly involve breaking the medical guild up, because the primary care physician is generally overqualified for a lot of what occurs in the office. Also standards of care need to be developed, and here there is a bargin, follow the standards of care and the treatment by definition is not malpractice, no matter what happens, i.e. no law suit is allowed.

    “The government loses about $1 trillion every year from tax loopholes. Over half of these losses come not from measures that apply to large segments of the population, like mortgage-interest deductions, but from giveaways to special interests. Removing these giveaways from the tax code could return to the Treasury more than $500 billion a year.”
    “There is another moral argument to consider. If we must make cuts, we ought first to cut those budget items that in effect pay for harmful activities and then those without any discernable social benefits, before we even consider touching those that are beneficial—even if the benefits are limited and their costs are high. This is a sociological version of the Hippocratic Oath: first, do no harm.”

  6. quote also reveals all about Republican representative leadership and the Republic for which it stands:

    “But it is the leaders of the country who determine the policy, and it is always a simple matter to drag the people along…the people can always be brought to the bidding of the leaders. That is easy. All you have to do is tell them they are being attacked, and denounce the pacifists for lack of patriotism and exposing the country to danger”

    Hermann Goering, Nuremberg Trial.

  7. Neither Revolution Nor Reform: A New Strategy for the Left
    By Gar Alperovitz
    “THAT A long era of social and economic austerity and failing reform might paradoxically open the way to more populist or radical institutional change—including various forms of public ownership—is also suggested by emerging developments in health care. Here the next stage of change is already under way. At first, it is likely to be harmful. Republican efforts to cut back the mostly unrealized benefits of the Affordable Care Act, passed in 2010, provide one example of this. The first stages, however, are not likely to be the last. Polls show overwhelming distrust of and deep hostility toward insurance companies. We can also expect public outrage to be fueled by stories like that of fifty-nine-year-old James Verone who attempted to rob a bank in Gastonia, North Carolina this year—but only, he made clear, for one dollar. The reason: unemployed and without health insurance, Verone simply saw no way other than going to jail to get health care for a growth on his chest, foot difficulties, and back problems.

    Cost pressures are building in ways that will also continue to undermine corporations facing global competitors, forcing them to seek new solutions. A recent report from the federal Centers for Medicare and Medicaid Services (“National Health Expenditure Projections, 2009–2019”) projects health care costs to rise from the 2010 level of 17.5 percent of GDP to 19.6 percent in 2019. It has long been clear that the central question is to what extent, and at what pace, underlying cost pressures ultimately force development of some form of single-payer system—the only serious way to deal with the underlying problem.

    A NEW national solution is ultimately likely to come either in response to a burst of pain-driven public outrage or more slowly through a state by state build up to a national system. Massachusetts, of course, already has a near universal plan, with 99.8 percent of children covered and 98.1 percent of adults. In Hawaii, health coverage (provided mostly by nonprofit insurers) reaches 91.8 percent of adults in large part because of a 1970s law mandating low cost insurance for anyone working twenty hours or more a week. In Vermont, Governor Peter Shumlin signed legislation in May 2011 creating “Green Mountain Care,” a broad effort that would ultimately allow state residents to move into a publicly funded insurance pool—in essence a form of single-payer insurance. Universal coverage, dependent on a federal waiver, would begin in 2017 and possibly as early as 2014. In Connecticut, legislation approved in June 2011 created a “SustiNet” Health Care Cabinet directed to produce a business plan for a nonprofit public health insurance program by 2012, with the goal of offering such a plan beginning in 2014. In California, there is a good chance a universal “Medicare for all” bill may be on the governor’s desk for signature by mid-2012. (Similar legislation passed by both the House and the Senate was vetoed by then-Governor Schwarzenegger in 2006 and 2008.) In all, nearly twenty states will soon consider bills to create one or another form of universal health care.”

  8. The radical overhaul is needed in the physical health of America. America is out of shape and it’s costing a fortune.
    Create incentive programs for those who stay healthy and those who keep fit through exercise and diet.
    Great health = Great wealth

  9. We can afford CARE. What we cannot afford : the bloated, overpriced medical establishment, the insurance system leeching off of it, and expensive life-prolonging procedures. And tweeked&patented drugs prescribed instead of perfectly good generic drugs. We must pry Medicare loose from the self-serving medical establishment which feeds itself with many unnecessary procedures and medications. For guidance we could look to countries with less money but good elder care, and follow the standards, and limits, they have developed.

    I feel there is a danger that elders will be blamed for ‘using up the resources’ of our ridiculously overpriced medical system — and that this scapegoating will turn public attention away from the real problems in the system, and then public resentment will be used to erode their other entitlements.

  10. The solution is to ignore the problem, the medicare deficit is 81.1 Trillion dollars. Rather than address the deficit issue, we simply ignore it and add to it, as if it were a national debt, which eventually it becomes when the debt needs to be monetized and subsequently paid for. In congress (the boehiemer dictionary) it is called offsetting the offsets. Since there is no political solution, the stall tactic calls for jobs to increase revenue, and promise future growth, which will pay for the deficits. Convince the right people and you justify any and all spending today, tomorrow, and in far into the future like 2040. By 2040, there will be so many dollars in circulation around the world, that you won’t have enough peter to pay paul, and mary wants to take that to the next level, leaving you unable to walk the walk. And so goes money, debt, and affordability.

  11. Relative to outright fraud and abuse, the amount of unnecessary care in the system is huge. Close to 250 Billion across all payers, with Medicare probably about 150 B of that. So yes, we can afford a decent health care system for the elderly, but we gotta fix a serious problem. And that’s where the friction emerges. One person’s savings is someone else’s revenue!

  12. The problem with Medicare is simply that it is insufficiently socialized. The Veterans Administration healthcare system is fully socialized; is is also the highest rated healthcare system in this country, and is so much more efficient than current Medicare, that adopting its model for Medicare will eliminate all future financial problems.

  13. I don’t understand why some people think that we cannot afford to pay for health care through Medicare, but we can afford to pay for it through private insurance, which has higher overhead costs and a profit urge. Medicare for all would in fact be cheaper than Medicare for some. I am also astonished that we still need intricate arguments to show what is obvious. The US is the only developed country without a national health care system that covers all citizens. That’s pretty extreme, especially considering how many decades ago the other countries figured it out.

    When wealthy patients from other countries travel to the US to buy procedures that they don’t need or are not urgent, the Medicare deniers say that the socialized medicine in the other countries doesn’t work. When US patients travel to India or other countries to buy vital procedures that they cannot afford here because insurance companies simply don’t cover them, it’s called Medical Tourism.

    The trolls have it exactly backwards.

  14. Article is right on point. Always lost in the debate is that Medicare is a mechanism for paying the bill generated by, mostly private, providers…just as private insurers are. There is no inherent value in substituting private insurers for Medicare. In fact, in addition to losing the negotiating power of size, private insurers are much less efficient. Essentially replacing Medicare with private insurers increases costs about 15% right off the bat..given our experience with Medicare Advantage. The cost problem lies in the generator of cost..private providers. Medicare as a bill paying mechanism actually restrains costs. So in what universe does it make sense to replace it with the higher cost admin mechanism??

  15. I think those who dislike any form of socialized health care are thinking “We don’t want to pay for all THOSE people (the losers), just for OUR people(the folks who have their sh-t together) , and we can do that much better with private insurance, and lower taxes.” Funny how seldom that perspective is expressed openly.

  16. @anando paduda…..this article is about medicare not meidcaide and obamacare. Please stay on subject when expressing an opinion.

    Who really thinks anyone reads the post that are longer than the piece we are suppose to comment on?

  17. Competition has addressed the issues of cost, quality and quantity in every other sector. Why is it people see health care as different. It is the same. It is a good like any other. Fraud prevention? private sector is the best at fighting it. You economists are so poorly situated to see all the unintended consequences of your social engineering. That is another reason why an open and free market is much better situated.

    and when you say it is too important to let folks go without, I can just as justifiably argue that it is too important for anyone but folks themselves to decide what is best for them. Isnt air too important for folks to decide on for themselves? food? these are more important than healthcare.

    How exactly is Mr. Obama better situated to know what my health care needs are than I am? You will cite progressive statistics that treat the individual as second to the multitudes because you place little value on the individual. Instead you treat us like a herd of cattle.

    How about creating a culture where folks learn what best for themselves and then letting themselves make their own decisions? It is not as if it is difficult to disseminate knowledge nowadays. Sounds more like a power grab is the reason for your continued centralized control.

  18. @anonymous, when information itself is a monetized thing the natural impulse towards taking advantage by withholding it takes hold. We live in a monetized information society where amidst the sea of apparently useful information the truly important information is not readily available in the public domain. If there is one area where a cooperative, rather than competitive, institution serves the self-interested individual better it is in ensuring the transparency of information and transactions. No freedom is absolute, and no individual survives in isolation. The support and maintenance of the commons is an essential component of individual liberty. No power grab here, just an understanding that some things are better done together.

    Despite the economic slowdown in 2009, national health spending reached $2.3 trillion, or $7,681 per person, and the health care portion of gross domestic product grew from 15.9% in 2007 to 16.2% and during 2011, health care’s share of GDP rose to 17.6%. Lost jobs meant that enrollment in private health insurance declined from 196.4 million in 2007 to 195.4 million in 2008. For those who are uninsured or under-insured, taxpayers were paying the inflated costs. The growth in health costs outstripped the 2.6% increase in 2008s GDP. Fr 2012, health care costs are spiraling towards over 18.5% or more of GDP.

    By the time the current health care reform efforts are fully implemented (2014), our health care costs will most likely exceed 20% of GDP. Republicans, Democrats, and health care experts all agree that we cannot continue the pace of spiraling health care costs.

    RISKS —> Reducing health care costs is a matter of national security, geopolitical and geoeconomic strength, and global competitiveness. Ignoring spiraling health care costs will ensure that our infrastructure continues to crumbles while a forced reduction in military defense spending becomes necessary. We cannot afford to allocate so much of our nation’s wealth to growing health care costs. Even with reduced health care costs, defense spending will need to be reduced significantly.

    I am not happy with the health care reform and reconciliation legislation. Though the teeth in these legislative efforts are not effective until 2014, they will NOT decrease health care costs and the costs are too much, though less than the status quo. Requiring everyone to purchase health insurance from the for-profit health insurers is not right, but it is constitutional as written (subject to Roberts, et al). Eventually, the US is going to find it necessary, fiscally, to adopt a single-payer universal health care system, similar in some respects to the systems used in other advanced economies (industrialized nations). Analyzing the various systems and selecting what would work best in the US, and what would not, should be the focus of health care reform efforts.

    A single-payer universal health care system would control costs by targeting the driver’s of spiraling health care costs, decrease the amount paid for health care insurance by all individuals, families and businesses, allow quality health care for every American resident, and decrease the percentage of GDP the nation’s wealth allocates to health care. —-> No, it would not be free, you would still have to pay for insurance with no ‘opt out’ provision (like Taiwan), but it would cost far less per capita than what we are now paying or what we will pay after implementation of the current legislation.

    Eventually, we will ask why didn’t we do this sooner? Winston Churchill said, ‘The Americans will always do the right thing . . . After they’ve exhausted all the alternatives.’

    Every American resident should have the same high quality of health care, including members of congress. And NO, a single-payer universal health care system would not reduce technical innovations, snuff-out new pharmaceutical research, nor degrade our health care system —> it would improve our health care system, which is currently not the best when compared to other advanced economies. ‘We have the best health care system in the world’ is nothing but a bunch of baloney targeted at the lowest of the low-informed voters. The majority of the media and public fell for this deception hook, line, and sinker. The health care and pharmaceutical industry lobbying efforts has, thus far, paid off.

    WHO WOULD PAY? We, the people would pay. Implementation of a single-payer universal health care system that would control spiraling health care costs would cost less per capita that what some people are paying today. Regardless of how you look a the ‘payment issue,’ we, the people, are paying for the health care of EVERY American resident, insured or not insured through taxation, insurance premiums, facility charges, and other means. Health care should be a right, not a privilege. Health care should not be a pay or die privilege.

    I vigorously support needed tort reform in a few health care areas, but it would only decrease health care costs by one-half of 1%, and, as the experience in Texas has indicated, tort reform alone does not decrease health care costs. Furthermore, both Democrat and Republican-led congressional proposals for tort reform have failed due to the lobbying influence of the trial lawyers. In other words, the failure of tort reform cannot be blamed on Democrats alone and the Republican partisan rhetoric regarding this issue is hypocritical. President Obama, who originally advocated medical liability reform as part of his healthcare federal legislative package, backed away after congressional disapproval (trial lawyer lobbying on both sides of the aisle).

    SEE The Cost Conundrum, What a Texas town can teach us about health care.
    by Atul Gawande, The New Yorker, June 1, 2009

  20. I am interested in hearing more about how the tax system provides less expensive health care for the affluent. In my mind’s eye I see this as like an inverted pyramid where the wealthy get the biggest opportunities to reduce the costs of their health benefits in comparison with the less affluent. Since tax math usually makes my eyes glaze over, learning about this function of the tax system in relation to financing health care was one of the aha-surprises that came from paying attention to health reform. I think most people don’t really understand how tax advantages work out like that (in caps):

    “That’s not peanuts, but there are plenty of ways to pay for it. For one thing, we could eliminate the tax exclusion for employer health plans, which currently costs the Treasury Department 1.9% of GDP (see “Tax Expenditures Spreadsheet”), including lost income taxes and lost payroll taxes. FORTY PERCENT OF THE VALUE OF THIS EXCLUSION CURRENTLY GOES TO HOUSEHOLDS IN THE TOP INCOME QUINTILE. If we eliminate the tax exclusion and use half of the proceeds to fund rebates to low-income households, we save 0.9% of GDP right there. Increase the Medicare payroll tax by 1 percentage point (from a level that hasn’t changed since 1986, despite twenty-five years of rising health care costs) and you get another 0.5% of GDP. In other words, those two policy changes alone — one of which eliminates a distorting subsidy that largely goes to the well-off — could buy us 30 years of Medicare.”

  21. A bigger question is, can we afford not to have medicare?

    Things are bad and Medicare is a big difference maker for the outcomes of many, many people. Can anyone imagine how much worse things would be for everyone, even those who do not currently use Medicare, if those who needed medical care had to rely solely on emergency medicine, charity, or going completely without?

  22. Medicare saves us money as a country. The healthcare that Medicare provides would cost twice as much if it were intermediated by private insurers. If we do away with Medicare, we take a big step toward bankrupting the country–not the government but the people as a whole.

  23. Anonymous says, “Competition has addressed the issues of cost, quality and quantity in every other sector. Why is it people see health care as different. It is the same. It is a good like any other….” That and much more nonsense.

    Insurance companies are in competition but they don’t provide health care–doctors, nurses and hospitals do that. Insurance companies increase revenues by raising their premiums, which they cannot do unless the cost of health care goes up. Insurance companies increase profits by reducing costs, which they do by denying service for ever more clever reasons–like pre-existing conditions. What difference does it make whether you’ve had the illness before? Don’t you still need treatment?

    Insurance companies are in competition with each other and with health care providers and their patients.

    This is obvious, but the trolls continue to drag out the same arguments. What is so frustrating is that there is no point to entering into debates with people who cannot change their thinking. They have blind faith. If you ask a Jehovah Witness what it would take to convince him that there probably is no God, he would proudly tell you that nothing could change his mind. I suspect these people are the same.

    Of course, it’s one thing to argue over the existence of supernatural beings and another to argue for Medicare. When people continually obfuscate with lies and smoke while millions of people needlessly suffer and die, it is unconscionable. And that is why they should be called out for what they are: trolls.

  24. Sorry, but I believe that this is really so ridiculous. The way to perminently resolve the issue with both Medicare and Social Security is so simple. Just remove the cap on the level of earnings at which the taxes are taken. As it stands now, they are regressive, only applying to just above $108,000. Remove that cap, and these will be funded until the cows come home with no problem. Such a simple solution. Is there a problem with doing that, other than lobbies? Of course, the cap doesn’t need to be lifted entirely, but the law can be written so that, like COLAs, it changes as necessary to keep the funding solvent, by incorporating a formula in the law.

  25. “policies that actually reduce the overall, economy-wide price level for health care–for example, by shifting toward payment methods that focus on outcomes and promote accountability–are good. We should do all of that that we can.”

    What we are really talking about here is rationing and it’s time we stopped hiding behind euphemisms. Every country that has a publicly supported national health care system employs rationing to contain costs. Rationing is coming to Medicare and Medicaid – the choice is will it be accomplished by government panels or the market.

    As a Medicare recipient, I would prefer the market. I really don’t appreciate Medicare providing “free” screenings that I don’t wish to use (mammograms) while denying coverage for others (vitamin d levels). I would rather have a screening budget that I could control and spend on screenings that are useful to me. I would rather have coverage for catastrophic illness and pay out of pocket for routine care. That way I could maybe find a gp that would take me as a patient. Finding a gp that takes Medicare is an increasing problem.

    I also can’t imagine a government panel such as the one that supposedly will determine effectiveness, responding quickly enough to changes in the science and also not responding to powerful interest groups such as those associations representing various disease groups (such as Komen) or to powerful narratives such as saving 9.2 oz infants who go on to live normal lives.

    Yes, market rationing may result in inequities, but the rich will always have more of everything, not just better medical care. The market can be cruel, but is it any more cruel than any other rationing method?

  26. Awaiting today in the radiation oncology area… enters building yapping on his cell phone, something about “he’s a good kid and has worked hard, and should be given consideration…” something to this effect.

    Then, “Oh, wait, I’m entering a dead zone….”

    You CAN’T make this stuff up.

  27. Just like with everything else it is a matter of priorities and what we see as being important. If it is important enough, we will find a way to afford it.

  28. Here’s the kicker. We’ve seen from the experience of modern nations that a national health care system for all citizens not only provides better health outcomes than we have here, but it also costs less than we spend now.

    I’m not sure that it’s a matter of priorities. I think it’s a matter of ignoring the nonsense that is coming from those who believe more in ideology than in solving problems.

  29. The billions going to “Patch” derivatives exposures is totally wasted, and will do ZILCH to lead the world out of this global depression….infrastructure spending is the only way the mess is going to uncloggings….bridges, roads, high speed rail, hospitals, cancer care clinics, new tunnels, so many inventive ways to prosperity and jobs without mollifying the money junkies in their temples of doom.

    Start with a meaning transfer tax on all WS transX, including City of London, to keep the social safety nets goings, otherwise 2012 is going to make 2011 seem like a high year in the Italian Renaissance.

    TBTF = Wipe them out. The more prudent players are still around, and will fill in for this disease on all our houses.

    Long prison terms in the Tower of London and Rikers Island, too…..hehheheheh

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