Andrew Sullivan is my favorite blogger by a wide margin, and not because I agree with him on every issue, but because I find his temperament to largely fit my own. He cares passionately about a great many issues, and is always ready to voice his opinion on them, but he is also often willing to listen to the other side and acknowledge the other side of the issue and even admit when he is wrong and change his opinion accordingly. But there are a few issues on which he becomes very stubborn and fixated on some truly unworkable positions. One of those issues is the deficit, and as health care costs are the single biggest driver of long-term budget deficits, Sullivan is now fixated on Paul Ryan's draconian plans for Medicare (never-mind Medicaid).
Sullivan, as he usually does, opens his post on Ryan's Medicare reform proposal by directing his readers to a substantive, well-reasoned, thought-provoking article on the issue at hand.
The most helpful piece I've read on Paul Ryan's proposal suggests that a voucher system for Medicare may be popular - but it likely won't cut costs, as the history of Medicare Advantage shows. Money quote from Austin Frakt:
'The politics of Medicare are such that Ryan’s idea, paying for care entirely through private plans, costs more. That's not due to a market failure, but a political one. Congress likes to spend money; insurers, providers and beneficiaries like to receive it. Congress spends even more when it can satisfy those interests under the guise of a seemingly pro-market, pro-competitive program. When it comes to cost control and considering the political calculus of Congress, vouchers and Medicare don't add up.'
Sullivan is right, Austin Frakt, an Assistant Professor at Health Policy and Management at Boston University, has written a very illuminating piece on Paul Ryan's proposal to turn Medicare fully into a voucher program while also reducing its benefits overall. Here's the evidence that Frakt uses that leads to the conclusion that Sullivan quotes above:
About Ryan's plan, economist Paul Krugman wrote in the New York Times, "[W]e already know, from experience with the Medicare Advantage program, that a voucher system would have higher, not lower, costs than our current system." Krugman is correct: When it comes to Medicare, vouchers and cost control, it seems you can't get all three.
Though rarely described this way, the private Medicare Advantage plans are a (voluntary) voucher system. When covering a beneficiary, an Advantage plan receives a fixed monthly payment from Medicare that depends on the beneficiary's county of residence and health status. That fixed monthly payment is tantamount to a voucher. With it, beneficiaries can select from any Advantage plan operating in their county. They can also stick with traditional fee-for-service Medicare--and about three in four beneficiaries do so.
But today, the market-based arm of the program costs more, not less, per beneficiary. Those fixed monthly payments to Advantage plans are, on average, 13 percent above fee-for-service Medicare costs. It didn't start out that way. Originally, private Medicare plans were paid 95 percent of per beneficiary fee-for-service costs. The logic was that private plans ought to be able to provide Medicare services more efficiently than traditional Medicare through a combination of controlling utilization and driving hard bargains with providers. So, Medicare used to take five percent off the top.
Then Congress began to ratchet up payments, first with the 1997 Balanced Budget Act and more recently with the 2003 Medicare Modernization Act. (This year’s health reform law aims to reduce Advantage payments, though still not below 100 percent of fee-for-service costs on average.) Ironically, traditional Medicare payment regulatory reforms--like the prospective payment of hospitals and home health agencies--have been more successful (even if not anywhere near successful enough) in mollifying the rate of growth in the program's costs.
What's going on? Why is the market-based Advantage voucher system not helping to control Medicare costs? The answer is that health care cost control is tough, technically and politically. Provider groups typically resist it. When it pertains to Medicare, beneficiaries resist it too. By adding another private-sector layer to the program--health insurers--the Advantage program invites a third source of political pressure. Rent-seeking by providers and insurers, as well as the power of the beneficiary constituency, align in their encouragement of higher Advantage payments. Congress, apparently, is willing to yield to that encouragement.
This is not a particularly surprising state of affairs as there are a whole host of issues where rent-seekers have captured the votes of Congress, the insurance industry just happens to be one of the most powerful and effective rent-seekers lobbying Congress. But Sullivan isn't convinced that the insurance industry couldn't be made to heel in order to keep the deficit down:
The argument seems to be that private insurance companies have so much political clout that they would be a more formidable impediment to cost-control than traditional, single payer Medicare. That seems defeatist to me. And, as Krugman points out, there is a very strong and simple mechanism for cost control in the Ryan-Rivlin proposal:
I’m sure that the Republicans will claim savings — but those savings will come entirely from limiting the vouchers to below the rate of rise in health care costs; in effect, they will come from denying medical care to those who can’t afford to top up their premiums.
But of course Sullivan doesn't quote Krugman's most important argument for why Ryan's Medicare plans are in for a bumpy ride.
Oh, and for all those older Americans who voted GOP last year because those nasty Democrats were going to cut Medicare, I have just one word: suckers!Krugman is a little too glib here for my taste, but his point stands: it's very hard to imagine seniors (and the baby boomers who are about to join them) taking on more of the costs of covering their medical expenses just when they're reaching the age when those costs are the highest without putting up a very big fight that they would most likely win. As Krugman alludes to, Medicare is a very popular program with both republicans and democrats, one that even many supposedly small government conservatives support, though sadly many of them mistakenly believe that medicare is not a government program (in no small part because their leaders lie to them repeatedly). But somehow Sullivan expects seniors to go along with something that is so obviously against their own self-interest when there is seemingly no political reason why they should have to besides the deficit being big (which isn't yet an economically pressing concern as interest rates are really low, and of course low interest rates make seniors even more sensitive to higher medical care costs as low interest rates are really bad for savers).
Yep: seniors will have to accept limits to the care they receive. And instead of the government rationing, they will just have vouchers that do not keep up with the price of cutting edge medicine. That should not mean abandoning the cost controls in health insurance reform, and constant exerimentation to make the health sector more efficient. And such an austere remedy requires, to my mind, sacrifice from those who earn over $250,000 a year.However much I might want to agree with Sullivan that drastic measures are needed to shore up the US deficit, especially over the long-term, which as a matter of course involves tackling medical costs, I don't see for the life of me how he can possibly think that Paul Ryan's plan is anything but DOA. Not only does Ryan's plan make the wrong assumptions about Congress, but it makes the wrong asumptions about seniors, the most powerful voting block in America. Sullivan can hope that politicians will show some back bone and stand up to insurers, but given their history and absolutely no change in their incentive structure there is no reason to believe they would. Sullivan can hope that seniors would act altruisticaly in their golden years to help safeguard their grandchildren from a crushing debt burden, but again, with no change in their incentive structure, why would they? Imagine you're 68 years old, you have just enough saved to make it relatively comfortably to 85, but you don't know how things would work out beyond that. Then the economic crisis hits, and while your retirement is safe since you were smart and hid it in bonds and savings accounts, all of a sudden the math has changed dramatically on your rate of return on your savings with interest rates being so low. Also, your only daughter's husband has just lost his job and your daughter is struggling to take care of her family as the primary bread-winner, so it's pretty hard to imagine having her take care of you too. Now someone comes along and says they might be raising the cost of your health care. How do you feel right now? I don't think you're feeling really generous, and I completely understand even though I'm 27 and I might be paying for the costs of your health care for the rest of my life.
Finally, just to add one more substantive critique to the Ryan plan, I encourage you to take a look at a report [pdf] McKinsey and Co. did a few years ago on why health care costs are so high in the U.S. I suggest reading the whole analysis, it's very good, but here's their final conclusion, which I think provides one final simple substantive reason why I think both Sullivan and Ryan are off base:
Our analysis shows that the high costs of US health care are widespread across the system. In the public debate about how to bring costs under better control, different advocates have proposed a variety of preferred targets for change--whether the administrative complexity of the privagte system, the profitability of the pharmaceutical companies, or the compensation system for physicians. Yet, our analysis shows that most components of the US health care system are economically distorted and that no single factor is either the cause, or the sivler bullet, for reform actions. To be effective, refrom in the US health care system will need to involve all key stakeholders and will require the proposal of solutions that are placed in the context of a coherent set of principles covering both the demand and the supply sides of the system.
Ryan's proposal only tackles one side of the issue by artificially reducing demand by reducing the amount of money that people have to spend on health care. It does nothing to address the issue of costs on the supply side, except by assuming that they'll be taken care of with less demand. But regardless of whether that's good economics, can you really imagine big pharma, the AMA, or the big medical supply companies, just giving up all the money they've made off the system without a fight? You have to address that issue or it will eat you alive. The worst assumption that both Ryan and Sulivan make is that they assume that to solve the issue of high medical costs all you really need to do is get a few groups of people to give up some very large government funded benefits. But in reality you actually need a whole lot of groups of people to give up a whole lot of government funded benefits, and I'm not entirely sure why seniors need to be first on the list of people needing to give up benefits.
No comments:
Post a Comment