An Extremely Mucked Up Medicare Debate

Or

Democrats and Republicans Favor Medicare Cuts and Then Deny It

Medicare is taking on a primary role in the presidential race. The discussion often turns to whether the program should continue in its current form, with more direct government controls over costs, or shift its emphasis to vouchers or premium support plans. Let’s try to set the record straight.

Lowering Medicare spending growth over the next 10 years from, say, an additional $500 billion to an additional $400 billion means spending $100 billion less on covered services. It doesn’t matter for budget purposes the source of the saving. It is a benefit reduction.

Both presidential candidates claim to save money on Medicare without cutting benefits.  President Obama says his reforms “will save Medicare money by getting rid of wasteful spending…that won’t touch your guaranteed Medicare benefits. Not by a single dime.” Meanwhile, Governor Romney promises that his “premium support” plan will save money while still providing “coverage and service at least as good as what today’s seniors receive.”

But politicians aren’t the only ones dispensing that free-lunch rhetoric. Even highly respected journalists and researchers get pulled into it.

Consider two New York Times stories. After the first presidential debate, Michael Cooper, Jackie Calmes, Annie Lowrey, Robert Pear and John M. Broder said that President Obama “DID NOT CUT BENEFITS by $716 billion over 10 years as part of his 2010 health care law; rather, he reduced Medicare reimbursements to health care providers.” A few days later, David Brooks cited an AMA study of a premium support plan put forward by vice presidential candidate Paul Ryan and Democratic Senator Ron Wyden, saying that “costs might have come down by around 9 percent with NO REDUCTION IN BENEFITS” [cap emphases mine].

Can you see what is going on? Politicians, reporters, and experts all recognize that cost growth must be brought under control. But they also want to suggest that benefits won’t be reduced—if only we go with a particular approach.

It’s one thing to say that we can spend $100 billion less on health care so we can use the money better for education or tax cuts or paying off our debt. But it’s another thing to pretend that we can get $100 billion more in educational benefits or money in our pockets and absolutely the same quality of health care.

We know from personal experience that certain medical procedures, at the end of the day, are worthless or worse. But there’s no budget line called “worthless health care” that our elected officials can bravely vote to reduce.

Instead, we are left with blunt instruments to control costs. A Medicare board may recommend or members of Congress may elect to cut payments to providers, as they have done many times in the past. One can argue such cutting may not produce a great loss in services, depending upon how providers and consumers react. But no loss whatsoever? Come on! Try lowering government payments for anything—rental vouchers, school lunches, highways—and see if the same services are provided.

Similarly, suppose that Congress puts more Medicare recipients into a premium support system, like Medicare Advantage–type plans run by health maintenance and similar organizations. The system then limits the growth rate of payments to those groups. Again, there’s less money to go around.

Both the regulatory and voucher approaches have a precise accounting correspondence. If the government spends $100 billion less, then it purchases $100 billion less in services and makes $100 billion fewer payments to providers.

Back to the presidential and vice presidential debates. Directly trying to control prices for individual services may not have the same effect as trying to control the total amount paid for all services under a premium, and vice versa. But no candidate can deny that he favors benefit cuts relative to today’s unsustainable promises.

To add to the confusion, each side talks as if some idealized system of cost control or premium support exists. Almost inevitably, we will be taking ideas from both approaches.  We’ll cut back on high reimbursement rates when we believe the effect on actual services would be moderate and, at the same time, use limited budgets to encourage providers to operate more efficiently. For instance, we might lower the payment rates for many operations faster and simultaneously induce more Medicare recipients to opt into groups like Kaiser-Permanente that make many allocation decisions within a fixed budget.

Ferreting out the truth in this Medicare debate also requires looking beyond health care. Benefit losses in health care must be contrasted with benefit gains elsewhere. Yet even health care will likely be much worse if we continue to borrow hundreds of billions of dollars more from unfriendly nations and let excessive debt inhibit economic growth.

Bottom line: both parties favor cutting Medicare benefits, or, more accurately, slowing down the rate of benefit growth. The issue isn’t whether but how this can best be done.


6 Comments on “An Extremely Mucked Up Medicare Debate”

  1. Dave says:

    Our system is open-ended. For example, if a medicare patient wants a procedure they can get it if they can find a doctor to perform the procedure. Literally, a terminally ill patient from cancer with 9 months to live can get a knee replacement if they choose. Until we have the leadership who will stand for a system with an annual budget the problem will not be solved. What other system that works do we administer where no budget exists for taxpayer expenditures?

  2. Carl says:

    I have to beg to differ. Shopping is an important function of the market. It seems a bit trivial for commonly shopped for things like groceries, because that market is already efficient. For markets where shopping is not the norm, prices can differ by an order of magnitude.

    I learned this the hard way when building my own set of speakers with special less than first order electronic crossovers to achieve true first order acoustic crossover and thus flat phase response. I got impatient with catalogs and went to a local dealer for capacitors and high power resistors. The capacitors were at least twice as expensive as mail order. The resistors were FIVE times as expensive.

    Shopping matters. Granted these were not identical products. One was over the counter and the other you had to wait for the mail. Similar thing would happen in medicine if people shopped. You might have to settle for group therapy for your diabetes counseling. You might have to schedule your vaccinations for batch processing like they did in schools when I was a kid to get the low prices.

    Now would vouchers accomplish this? That’s is worth questioning if the vouchers are for buying health insurance vs. being for health services.

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