Medicare
Apr11
By John Feehery
Amid all the talk of a government shutdown, Democratically-aligned outside interest groups started running commercials against Congressional Republicans about something that had absolutely nothing to do with the government shutdown: Medicare.
This issue is where the Democrats hope to mount their comeback in the next campaign. This is where they believe Republicans are vulnerable to charges of hypocrisy. This is where they think they can best recapture the senior citizen vote. And this is where they have a long and successful history of demagoguery that has helped them win elections in the past.
Lyndon Johnson signed Medicare in 1964 as part of his Great Society program. At the time, Republicans denounced it as socialism, but as the program became more and more popular, they changed their tune. If you can’t beat them, join them.
Johnson created Medicare because of a market breakdown. Older Americans couldn’t get access to health insurance because health insurance companies didn’t benefit in selling an insurance policy that was certain to cost them a lot of money. Government stepped in where the market would not.
But over the years, the government has distorted the rest of the health care marketplace, and worse, has put the taxpayers on the hook for a huge, unfunded liability. Because politicians don’t like to make tough choices, they have decided to take the easy approach on Medicare spending up until this point, and let the deficit continue to grow. After all, kids can’t vote.
The government has tried to put in price controls as one way to control costs, but the result has not been controlled prices, but rather an uncontrolled departure of quality doctors from the Medicare program. Good doctors would rather leave the program than stick around and get paid at a diminished rate.
Medicare has four parts. The first two, Part A and Part B, reimburse hospitals and doctors for care, and are the traditional Democratic responses to a problem. The government institute price controls and pays the bills. Part C and Part D, the so-called Medicare Advantage program and the Prescription Drug benefit, attempt to use market force and competition to provide seniors with higher quality, but lower cost health care.
Not surprisingly, Part A and Part B are the parts of Medicare that are causing the most problems. Part C and Part D are the parts that Democrats hate the most and have been under attack from liberals from their start.
Paul Ryan, in his budget proposal, is trying to implement a premium support Medicare model, based loosely on the Medicare Part D model. He is trying to use market forces to create a better market place for hospital and doctor care for senior citizens. He believes that market forces can help slow down the exponential growth of Medicare spending.
The market for senior citizen health insurance is more viable now than it was in 1964. One reason is that seniors are living longer, in most instances 20 years longer, which means that insurance companies can find a model to make some money. Second, the rise of prescription drugs gives doctors a cheaper and more efficient way to deliver care.
That is not to say that the marketplace can take care of seniors health care by itself. Clearly, the government needs to help some folks, especially poorer seniors who have planned well for their retirement or are beset by bad health and bad luck.
But the government shouldn’t unnecessarily and inefficiently distort the marketplace. It can achieve a happy medium that uses market forces to hold down costs while providing superior service to our seniors and a strong safety net for our most vulnerable citizens.
It is hard to communicate what Ryan is trying to do, especially when the Democrats are trying so hard to obfuscate the issue and score political points. But communicating effectively is essential to the ultimate survival of Congressional Republicans in the next election, and the ultimate survival of a more balanced approach to making Medicare solvent for the future.
There are no absolutes when it comes to Medicare. The government rushed in to fix a market failure in the 60’s, and now it is the principle cause of the market failure. Finding a balanced approach that protects the most vulnerable as it protects the taxpayer and using market forces and competition will be difficult, but it is not impossible. It will require leadership from the President and courage from Republicans. Republicans have shown that they have plenty of courage. We are all still waiting for some sign of the leadership from the President.
The reason why people like me are screaming bloody murder over Ryan’s Medicare plan is that it takes the worst parts of the current system for seniors and melds them with the worst parts of the “everyone-else” private insurance-based system. You are right when you say that there is market failure in relation to providing adequate coverage for health care for seniors. But you stop short — the market fails with respect to the provision of and payment for health care, PERIOD.
In order for a market to function with respect to any commodity, there are certain prerequisites. These prerequisites do not/ can not exist in the health care scenario. One prerequisite for a functioning market is that both sides must have perfect information. This fails on a number of levels – people generally have no way of knowing their actual health status and risks, doctors don’t disclose fees ahead of time, patients must rely on docs to determine diagnosis and treatment, even well informed patients who go to a doctor and get a set fee disclosure there are other fees (hospital, labs, etc.) that are also part of the picture and, basically, medical care and treatment is something that is beyond the ability of most individuals to comprehend because it is so highly specialized. Another market prereq is that there must be an arms-length relationship between buyer and seller. This really isn’t the case in medicine unless you envision a scenario in which consumers can, in every instance, walk away from care if the price is too steep. This is how supply and demand, in a functioning market economy, align to determine price. But not in health care.
Now I should mention two other economic principles that weigh heavily of the entire health insurance/public vs. private debate: adverse selection and moral hazard. Adverse selection, which comes into play a lot in our current system or any “optional coverage” system, means that people who are sicker will opt into the system and people who are healthier will opt out. Because the entire premise of health insurance is based on the principle of shifting and sharing risk and cost, it only works if some people pay for more than they use and other use more than they pay for. If you have all high-risk or high-cost patients, or if people only buy into the system when they have an actual need rather than a possible need in the future, then the system fails. This is why mandatory insurance/universal coverage is so critical to a well-functioning health system. The concept of moral hazard (a term that I hate!) is that if people are covered by insurance that insulates them from cost-based decision-making to some degree (“hey, I’m covered – so why not have that scan?”) they will consume more care than what they need. Of course, bleeding hearts like me think that the real moral hazard lies in the fact that essential health services are NOT consumed by people because they can’t afford them!!!
When you’re talking about older people in a health system where there is no mandate for coverage, you have to make a value judgment about how to deal with a population that is sicker and, to a large degree, has lower or fixed income. If you require private companies to cover older people, then you get a terrible drain on the system where younger, healthier people opt not to be covered. As well, insurance companies “risk-rate” you, so that on the basis of risk-associated premiums, many older, sicker people would be priced out of private coverage unless the government capped their contribution, which then puts the risk of financial loss back on the insurance companies or on providers (who might have to provide under- or un-compensated care.) We decided to take our seniors into a “universal health care system” for the elderly. And it works. Medicare is a big success. What is so bad about Paul Ryan’s Medicare overhaul – giving senior citizens vouchers for $xxx fixed amount to buy health insurance on the private market? In Ryan’s thinking … and he’s right on this … it caps the US gov’t expenditure on health for this population. But it does NOTHING to change the way that we consume care, which is why it costs so darn much. What is does is that it puts an entire adverse demographic back into a non-mandatory, grotesquely dysfunctional system.
With respect to health care in the US, these facts remain:
These facts remain: we pay more than double per capita what the next closest country spends on health expenditures(>$7000/person/yr); we do not cover a significant number of people (40-50 million); we have worse health outcomes than comparable OECD nations that spend much less than we do; we have comparable health indicators to those in Cuba, which has a per capita health expenditure of about $310/person/yr.; we spend about 30% of every health care dollar on overhead and administrative costs vs. 15-20% in other countries; we do not use a great deal of evidence-based medicines (or common sense) in deciding whether and how to pay for health care.
Unless we address the cost issues, we will continue to shift the burden from one sector to another in a futile effort to fix the symptom rather than the problem itself.