Twisting The Medicare Debate

Paul Ryan and the Republicans are upset. They are fighting mad that Democrats have framed his budget blueprint as the destruction of Medicare, and even more furious that the public is buying the argument. The problem, for Republicans, is that the basic points being hammered on by the Democrats are exactly correct; the Ryan Plan does destroy Medicare as we know it, it does raise costs of delivery to seniors after implementation, and it will result in millions of uninsured or underinsured seniors.

Here is the “but”; the core idea of the Ryan Plan would control costs within the federal budget. The keys to the previous statement are “core idea” and “federal budget”. If you believe a problem only exists if it is reflected in the federal budget, then fixed price vouchers, indexed to inflation, is a sound idea. But for a large majority of Americans, the basic idea of the Ryan Plan amounts to an individual mandate to sink or swim in our golden years. Maybe though, there is a compromise available. There is, just possibly, a solution that uses the Ryan Plan as its foundation.

The whole point of a public reform of the private health care market is to increase coverage rates and decrease delivered cost. As the bulk of the professional economics community has repeatedly stated, if the United States had per customer costs of health care equal to other advanced nations, we would be looking at long term budget surpluses instead of long term deficits. But long term deficits do represent an obstacle to every initiative now and in the future. We could use the vouchers of the Ryan Plan as the foundation of a plan that would force providers to become more efficient, cover all senior citizens, and ensure long term budget stability.

For your target shooting enjoyment, here is The Rational Middle Health Care Plan:

  1. Per the Ryan Plan, issue vouchers in lieu of direct federal coverage to seniors. Do not change the age of eligibility.
  2. Provide for an insurance company mandate; all firms should offer packages with the same current coverage amounts, procedures, and the same copays and pharmaceutical schedules. The baseline for out of pocket payments should be the average out of pocket expense as a share of median income for 2010.
  3. The federal government will be billed by the insurance companies directly for voucher reimbursements.
  4. Extend the same plan, based on the same basic assumptions, to current covered classes in SCHIP and Medicaid.
  5. Fully federalize the cost of SCHIP and Medicaid by raising the employee portion of the FICA tax to cover additional costs.
  6. Coverage, by insurance companies, of Medicaid/SCHP beneficiaries should not be mandated.
  7. Establish national Medicaid coverage at 100% of the poverty level; states may pay into the system to cover beneficiaries above the federal pay ceiling.

Instead of shifting the burden to senior citizens, this plan shifts the burden to large, well-capitalized firms who have the knowledge and wherewithal to fix the problem. As conservatives often point out, it is private industry that has the capacity for innovation and true problem-solving, and I believe they are the ones who will ultimately solve the problems of rampant cost acceleration. Faced with a well-defined schedule of government payments covering the next several decades, and a well-defined rate of cost acceleration over the same period of time, insurance companies would be able to work directly with providers and supporting industries to control costs.

The change in payroll tax represents a burden that falls squarely on the working class, which seems more than fair in order to provide more efficient coverage to that class. The changes to Medicaid and SCHIP also make good economic sense; the federal government can flexibly leverage economies of scale not available to state governments. States would see instant and long-lasting budget improvements, and be able to return focus to education and local commercial infrastructure.

Private insurance companies, along with the rest of the industry, have the capacity to change the cost paradigm in U.S. healthcare. The reality, however, is that they haven’t. We have seen 3 decades of inflation in the medical marketplace with little or no real effort on the part of the private sector to improve costs. Paul Ryan and other faithful adherents to the philosophy of Ayn Rand are free to preach on the innovative powers of the free market, but we the people have yet to see any data to suggest there is any truth to the rumors of Atlas Shrugged. Maybe shifting the cost structure to the private sector, without a diversion through the lives and life saving of our senior citizens, is just the ticket.

The Rational Middle is listening…

8 thoughts on “Twisting The Medicare Debate

  1. “…the destructive economic force of medical marketplace inflation over the last three decades. ”

    Supply and demand, and the government’s role in skewing both, seems to be skipped within your post. I’ll write a longer reply, with my viewpoints on this subject, after I get done with my Saturday chores of dropping off some recycling, mowing the lawn, cleaning the gutters, setting up some new landscape lights, and painting a bench.

  2. As a note Scott, the CBO estimates of out of pocket costs (after the Medicare voucher) under the Ryan Plan in two decades is 143% of median income. Your 18 months of cash and cash equivalents will serve you well (for the first year at least).

    What you and our good friend Tommy (and yes I mean that in all sincerity) don’t, aren’t, haven’t, won’t account for, is the destructive economic force of medical marketplace inflation over the last three decades. Healthcare has gone from under 7% of GDP when Reagan took office to over 15% now. The consequences to business (setting aside purely human costs) have been catastrophic, and the private marketplace’s (quite reasonable) answer has been to shift to a premium pricing strategy and shed customers.

    We could strip away government health care guidance/support, and let the private market have free reign, but the consequences are abundantly clear; less economic freedom, more unresolved health conditions, less solvent medical providers, and an economy thoroughly unable to compete with those nations who have accounted for these market forces already.

    And Tommy, I can promise you that the entrepreneurs and corporations of the rest of the G-8 aren’t clamoring for a U.S. style health care system. But what do they know about business?

  3. “The whole point of a public reform of the private health care market is to increase coverage rates and decrease delivered cost.”

    No, the whole point is socialized medicine. The left’s goal is to take health care away from the private sector by taking profit out of medicine. I just wish all of you would come clean about it.

    I agree with Scott.

  4. Thanks for the comments, just a couple of clarifications. The link shows Medicare and Medicaid spend 26% and 25% of their budgets on final year costs. Obviously, 25% of the enrollees are not dying each year, so this is just wasting money. I do also think I could do better if I got the 13% cumulative annual salary back that I pay and my employer pays. I’m not going to give exact figures, but I have 18 months annual gross salary saved in cash or cash equivalents. My wife stays at home with our daughter so this is on a single income. It’s not easy, but it’s possible. My grandfathers were my heroes, one died from a heart attack and had a no resusitation order because he did not want to waste all of his money giving it to doctors. My other grandfather fell ill and the hospital overmedicated him and gave him a dose 10x above the prescription — the effect was to weaken his heart and kill him within a week. I really would rather people act like adults and not crybabies, the medical establishment whether government run or privately run makes mistakes and kills people all the time. Last I looked at the numbers, accidents by doctors killed about 300k in the US, while auto deaths and gun violence was somewhere around 15% of that combined. I read an article in The Week magazine (highly recommend) about a brother’s story about his sister dying. They knew what was coming but couldn’t spare her from the pain of having her digestive track fail and everything come back up. I can’t imagine living through the horrible things he described first vomiting up bile and then stool. I still think it’s insane and I don’t see why force people to hang on, ring up giant medical bills for no gain personally for society. Given the costs of the system, we could extend it a lot further by just making common sense and actual compassion available but we cannot get that from greedy seniors and Palin and the Schaivo’s parents. My grandfather killed by the medical “profession” survived the raid at Pearl Harbor but not our medical establishment. So I do think of my parents and grandparents and I’m making my plans for me and my family. I further stand by my statements that these crybabies don’t have a valid claim, even in our society, to bankrupt my future and steal from my daughter.

  5. @scott, While i do understand your point of view i have to disagree. If you don’t mind, go and look up some of the pictures of people during the great depression. There were literally people starving and dying in the streets. Is that something you want to see again? When things get that bad people will literally kill you for a loaf of bread. Desperation is very powerful and overriding emotion. When your daughter is crying because she is starving you can’t tell me you would just let her starve and tell her “sorry sweety just eat some more of your hair.”

    We live in a society, and that comes with some baggage true, but, there are some very nice advantages too. Public schools, police, firemen, transportation, commerce, industry, technology…etc. We do pay a cost to live in a society but we get a lot out of it too, that is for sure.

    I would say try not to think of it as “elderly crybabies” and try to think of it as YOUR parents or YOUR grand parents. People that you care for that worked their entire lives, made an honest living but the costs are more than they can afford… I see nothing wrong with helping people who have worked hard their entire lives and now that they are getting older need a little help so they don’t suffer terribly in their final years… ALL of us will be there one day.. If you think they are taking advantage of you, remember this, you will be doing the same thing in 30 years… so don’t be too quick to judge.

    As for costs… medicine in the US is ridiculously over priced because people are willing to pay for it… that is an abuse of capitalism (collusion much?) and needs to be corrected.

    As for this article, pretty much any voucher system that assigns value based on inflation is flawed. Inflation as reported by the government doesn’t track with cost of living… “True” inflation is closer to 10% but they will never admit that…

    Also, that link scott didn’t appear to say anything really damning other than the last year is expensive… that is not a shocker imo.

  6. Scott…I can certainly understand your thoughts, but do you have enough money saved for the last 6 months of medical expenses you will incur? Do you know anyone who does? Would you or anyone you know have been able to save enough had they not paid FICA via their payroll disbursements?

    A significant portion of Medicare spending is taken by those patients in the final year of their lives, but it is a reality of the medical delivery system, not a choice to save. Even if I bought into the notion that Medicaid or unemployment benefits were bad public investments supporting the lazy (which I don’t), I would not place Medicare in the same boat.

    The private medical marketplace is one driven by a cartel of firms selling a public utility…any notion that medical care is, in any way, a consumer good is ludicrous. So yes, something needs to be done, before the issue destroys the private marketplace’s ability to compete internationally. The other advanced economies of the world, and the businesses (small and large) that operate within them, have already addressed this issue. Alone among the rich nations of the world, U.S. business interests are forced to deal with the productivity losses, hamstrung labor markets, and steep institutional costs of the medical marketplace. Our competitors in nations like the U.K., Germany, France, Taiwan, Japan, heck, even Israel, have fixed this issue with systems whose customer service ratings are equal to higher than our own. Their outcomes are also statistically better.

    My plan, or anyone else’s, doesn’t start with an assumption of “elderly crybabies”; it starts with the twin assumptions of human dignity and economic stability.

  7. Hey Michael, Could you maybe touch on at some point why this is even necessary? To me, it seems like a failed experiment for the last couple of generations. Many, many more generations of Americans did not have healthcare provided for them over the history of our country. I know we want to say these promises have been made and certain expectations are out there, but I really feel like — so what? Why can’t seniors plan for themselves? Why shouldn’t the burden for taking care of oneself be on oneself instead of the rest of us? Is it really a surprise that they got older? I would have thought by the time they were a couple of years old they understood birthdays and aging. A few years after that they understand wants and desires. I completely understand the desire for cheap drugs to fight off natural aging, but if they can’t pay for it, they can’t pay for it. Why do they have a claim against me, why must something be taken from me to fulfill their desires? All of the seniors bitching about needing better drug coverage and the donut/gap in their services have so much more than even their parents. I just don’t understand where this entitlement mentality comes from. They cry more about “I want! I want! I want!” than my 2 year old daughter does for a cookie. This is obviously not the greatest generation, they are the oldest babies ever in this country. Their failure to plan for their future does not give them a right to bankrupt me or my family. I don’t know if the stats were correct or not, but I saw somewhere that 50% of the medicare budget is used by 5% of the patients. Here are some of the stats on end of life care and how much more expensive it is. http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1464043/
    I think Sarah Palin can just go away and let us have the death panels and end of life counseling. We don’t need US Senators diagnosing Terri Schiavo on the floor of the Senate and we don’t need to keep paying for absolutely nothing. We’re spending enough on each of these patients in the final year (of laying in bed) when we could double the amount we spend on four students with that same money. It’s completely insane, we’re investing in the past and getting no return on that money. Maybe if we let those people go we could fund one of the kids who’s going to cure cancer with better math and science classes and technology. The greatest generation are those aging Japanese volunteering to go fix the nuclear meltdown caused by the tsunami. Our aging population wants to bankrupt their family, their neighbor, and most of the town. And it’s only getting worse because these drugs and technology are allowing longer life expectancy. Your proposal, the Republican one, the Democratic one, it doesn’t matter — they all start with the false assumption that we need to spend money on elderly crybabies simply because they show up to vote. Argh, I just can’t believe these people call themselves Americans.

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