I don’t have the time to give this the attention it really deserves but I wanted to do a quick drive-by. In response to Paul Ryan’s draconian proposal for balancing the budget, which relies heavily on privatizing Medicare and Medicaid, Ezra Klein notes:
You can argue whether this cost control is better or worse than other forms of cost control. But it’s a blunt object of a proposal, swung with incredible force at a vulnerable target. Consider the fury that Republicans turned on Democrats for the insignificant cuts to Medicare that were contained in the health-care reform bill, or the way Bill Clinton gutted Newt Gingrich for proposing far smaller cuts to the program’s spending. This proposal would take Medicare from costing an expected 14.3 percent of GDP in 2080 to less than 4 percent. That’s trillions of dollars that’s not going to health care for seniors. The audacity is breathtaking.
But it is also impressive. I wouldn’t balance the budget in anything like the way Ryan proposes. His solution works by making care less affordable for seniors. I’d prefer to aggressively reform the system itself so the care becomes cheaper, even if that causes significant pain to providers. I also wouldn’t waste money by moving to a private system when the public system is cheaper. But his proposal is among the few I’ve seen that’s willing to propose solutions in proportion to the problem. Whether or not you like his answer, you have to give him credit for stepping up to the chalkboard.
That beats Matt Yglesias’s response which is that we should eliminate the deficit by cutting defense spending:
So if even Democrats won’t raise taxes and even Republicans won’t cut Medicare, what’s left? Perhaps defense. The problem here is that while targeting defense waste always has some support, there are few politicians willing to question the real driver of Pentagon cost—the American military’s global mission. The presence of a huge number of American military assets in Japan isn’t waste. But it’s hardly vital to the security of the American people, either. In this regard, it’s typical of our military expenditures, which are neither about waste nor about “defending our freedoms,†but about projecting power. In particular, we choose to be key players in East Asian security rather than leaving it to the Chinese and Japanese and Koreans to sort out for themselves.
To bring fiscal sanity cutting healthcare spending is really the only game in town. Increasing taxes won’t do it. There is no reasonably foreseeable level of taxation that will accomplish the task.
We can’t do it solely by cutting defense spending. Eliminating the defense budget in toto won’t eliminate deficits expected to run at $1.5 trillion or more for the foreseeable future. By anybody’s reckoning total defense spending is half or less that.
I think it’s possible to cut the deficit largely by eliminating the federal government’s spending on healthcare. I don’t think it’s possible to do that in a manner that’s consistent with good public health or public policy. I’ve already expressed my preferences on cutting healthcare spending: means-testing, taxing employer healthcare plans, measures to increase the supply of healthcare. It may be that a new program could be carved out of Medicare to subsidize the healthcare of the elder poor. Their situation really is different from that of 20 year olds without a job.
I may as well express my preferences for cutting the deficit as well: reduce healthcare spending (along the lines suggested above), cut military spending by reducing our military commitments in Iraq, Afghanistan, Europe, and East Asia and reduce the size of the Army, means-test Social Security, modernize the providing of services by the federal government and cut the federal payroll, eliminate pensions for elected officials, reduce federal employee’s pension plans, eliminate agricultural subsidies, start phasing out the building of new interstate highways or the expansion of old ones, reserve capital spending by the federal government for things that really are for the “general welfare” rather than for particular welfare. I support a carbon tax.
I’m under no illusions about my preferences: I doubt that any of my preferences will ever see the light of day. But there are really hard choices ahead, the president’s fiscal 2011 budget fails to make them, neither of the two major political parties want to make them, and the time of reckoning is very, very near.
Dave,
It looks grim. Maybe the readership here can pool resources and prepare for that time of reckoning.
I mostly agree with your prescription on defense. These are changes we need to begin to make now in order to preserve global stability. Transitions take time. The world stage will be very chaotic and dangerous if the world wakes up one morning to find that the US is going to immediately abrogate many of its defensive alliances.
If you put things off long enough, doing things immediately (and poorly) may be the only choice left. That’s why I thought we should have bugged out of Japan and Korea twenty years ago and not gotten involved in the Balkans.
At the root it’s paternalism; it infantilizes your allies. Germany and Italy were completely capable of dealing with the situation in the Balkans and they were the ones with skin in the game.
Dave,
I do think there is some paternalism, but these countries really do like great-power support. Korea did need US backing against continued threats from the North, for example. Also, I disagree that Germany and Italy could deal with the Balkans – they have no significant ability to maintain forces outside of their own borders.
Regardless, the US won’t be able to maintain it’s position as the guarantor of world stability and the logisticians for our allies.
BTW, Krugman’s got his head buried in the sand.
We do need to cut back on our overseas bases. Your reasons are sound. I would add that while Germany et al. are our allies, they are also our economic competitors. Let them pay for their own defense.
It will be interesting to see if Republicans accuse Ryan of rationing, like they did with the House and Senate bills. I need to digest his plan a bit, but on first approximation, it does a lot of things I like. It gets everyone, pretty much, into the same private insurance plan, except for the Medicaid group. This will make it more difficult to play to the seniors. It reduces the deficit. Those are two noble goals.
I am not sure if this will work more like cost controls or a subsidy. Would appreciate Steve Verdon’s thoughts on that if he stops by. Seems like it could be seen either way. Will it cause health care providers to lower fees, or will the elderly just pay more out of pocket, those who can afford it, leaving costs untouched? Why not add in a few points from the Senate bill like requiring that providers post their fees?
I would make federal employees have defined contribution plans. Only state plans with defined contributions would be eligible for fed protection. I would means test pensions for elected officials as I maintain the hope that some non-rich folks might still make it into office.
Steve
The Balkans was definitely a bad idea, particularly that abomination of an intervention in 1999 with regards to Kosovo. To go back further, it might have been a good but risky idea to begin dismantling NATO in the wake of the collapse of the Soviet Union and Warsaw Pact, although that would raise the issue of “Germany” (we don’t think about this now, but Thatcher in particular and the UK and France in general were very wary of what a unified Germany might entail). At the very least, we should have “Europeanized” it, turning over the burden of it to the EU countries, so that we could draw down our European commitment.
In the past, definitely. That’s not the case now, although I think a US guarantee of protection (if not troops in Korea) helps. I’d support something like the relationship with Taiwan, where we offer what is basically a defense guarantee as well as selling them weapons.
But if it came down to it, South Korea is perfectly capable of dealing with the North. They have a smaller but far more advanced and well-trained force than the North, and that capability would be even greater if they brought out nuclear weaponry.
I agree. If/when intervention finally came in the Bosnian civil war, it would probably be lead by either the British or the French, both of whom have done power projection abroad (the French do it in their former colonies, for example).
They are big, powerful, rich developed countries. If they wanted to develop enough capability to project force across their borders, they certainly could do it. We’re not talking about projecting force across an ocean. Munich is closer to Zagreb than Chicago is to St. Louis. Why should they as long as we’ll do it for them?
Besides, it’s so much more fun for them to stand on the sidelines whining about how awful we are while we function as their janissaries. They might have the good grace to STFU.
So Ezra thinks he’s found a magic pony. Good for him, but why is anyone still taking him seriously?
Except that it really isn’t. Oh…sure, adminsitrative costs are somewhat lower, but in the end it is Medicare that is killing us in a fiscal sense. It is a hugely expensive program. Again, why take this guy seriously? He is a disingenuous boob.
Dave had a graph from Kotlikoff and another economist that compared health care spending across countries. For the 65 and under portion of the population spending was reasonable. For 65 and over…well that’s the problem. If Ezra’s magic pony could make that go away there would be no problem. But it wont make it go away. And I doubt it is going to make the problem managable either.
Found it, here is where you can see the graph,
http://theglitteringeye.com/?p=7564
Dave’s conclusion: Medicare for all would bankrupt the country.
Steve V:
I don’t understand your point. Yes, Medicare is killing us. But Medicare is also cheaper — procedure per procedure — than the private health care system. Medicare does not solve the problem, of course. It is part of the problem. But if we didn’t have it, we’d be spending — as a country — even more on health care, no? The government wouldn’t, which would be a good thing. But the private sector has even less ability to control costs, which would mean more uninsured, less access for people of limited means, etc. All fine, if you accept the tradeoff.
I don’t really know how to control medical costs. But the private sector sure as hell doesn’t either. And since medicare is actually better at it than the private sector, doesn’t that at least leave open the possibility that Klein is right and that the answer is MORE government, not less?
Just to follow-up, the reason we spend more than anyone else on after 65 population is that we pay more per procedure than any other country and the over-65 crowd gets more procedures. If we paid less per procedure, the over 65 numbers would decline, but the under 65 would not decline by as much because they get more preventive care and simpler cheaper medical interventions. Our graph is skewed because our lack of cost controls across the entire medical system becomes acute in the over-65 segment, not because Medicare is particularly bad at cost control.
Maybe, maybe not. If you subsidize something you tend to get more of it, cut the subsidy and you get less. Medicare is a subsidy program.
According to the graph Dave has posted it is the problem. As I noted in that post, remove the spending for 65 and older and there is no problem. The U.S. would then spend less than any other country in the chart dave for Canada.
Right businesses are actually cost maximizers.
Why then do private insurance companies pay more than Medicare? I can show you thousands of bills, names redacted of course, to demonstrate that. Private insurance costs have grown as fast as Medicare, so it’s not like they are decreasing.
We tried to cut back on private spending a bit with HMOs. Did not turn out that well. When companies try to not pay for expensive transplants or cancer treatments with dubious benefits, they are guaranteed a non-flattering appearance on TV. Any single company that attempts to cut coverage on its own, risks big losses in customers as a result.
Steve
Bernard,
I think the point is that our system is so broken that who writes the checks doesn’t matter very much in the end. Medicare is supposedly cheaper, but the “cost” of cheaper prices for procedures is that doctors limit how many medicare patients they’ll take. What do you think would happen if medicare really cut back on what they pay for procedures or even just limited cost growth to the rate of inflation? You’d see providers run away from medicare and those that didn’t would start doing more procedures to make up the difference. The idea that medicare can better control costs is therefore an illusion.
Maybe, maybe not. All I know is that Medicare reimburses providers at a lower rate than the private sector.
Steve and others are so in the thrall of the “free market” that even in the face of evidence they will continue to assert that the private sector can do better containing costs. What Steve, and the others forget, is that insurers are competing with each other for customers, so they need to provide additional services and higher payments to lure more providers into the network. If the private sector had, say, a guaranteed enrollment pool — say a monopoly on the insured in a given region — they would indeed probably be better at controlling prices than the government. But since they compete for customers, they can’t squeeze providers in quite the same way Medicare does.
Which is why… by the way… people like Klein (and me frankly) like the idea of single payer system. That is the most effective path to cost controls.
But we won’t get there as long as there is still such a large segment of free market ideologues who remain convinced regardless of all empirical evidence that the government in inherently ineffecient at this sort of thing
I think that you’ve got the causality the wrong way around. Medicare serves as a price support for healthcare. Of course Medicare reimbursement is lower than the private sector. That’s what it means to be a price support.
The implication of that is that healthcare costs in the entire system can be reduced only to the extent that Medicare reimbursement rates can be reduced. So far, they’ve been pretty resistant to reduction.
Medicaid pays even less than Medicare. Anyway, given that you think Medicare serves as a price support, why don’t private insurance companies pay the same rates or even closer to the same rates?
Andy- Maybe, but then why don’t docs try to do as many procedures as they can on patients with better paying insurance right now?
Steve
Several reasons. First, they’ll always pay more than Medicare. That’s what they’re bidding against.
Second, insurance revenues are proportional to premiums. Insurance companies have no incentive to press for lower rates. IMO a better question is why aren’t their rates higher? My guess on that is that it’s a combination of what the market will bear and fear of regulation.
Another good question is why cost-minimizing self-insuring companies don’t press for lower costs? That’s most of them, BTW. At this point I only have one speculation and would be interested in the answer myself.
My speculation is that companies see the cost of employees as total compensation rather than wages and compete against each other for employees on that basis. But that’s only a speculation.
Medicaid is an interesting case. My direct experience with Medicaid is strictly from the billing perspective and it’s been my experience that Medicaid is significantly harder to deal with than Medicare. I can only guess at the reimbursement differential. Probably some combination of ethics and fear of regulation leads physicians to continue to accept Medicaid despite its lower compensation.
Dave,
Is your comment and my comment in disagreement? IOW, if medicare payments were lowered, would that reduce costs in the system as a whole since the floor would be lowered?
I think it would, Andy. As I see it the problem is that Medicare reimbursement rates are a political football.
Why doesn’t the Senate like the idea of binding commissions to reduce costs whether they’re the federal budget as a whole or the “MedPac on steroids” the Obama Administration has supported? Because it strips them of clout.
Dave:
I disagree about the reversed causality argument. The problem is the underlying assumption that the private sector seeks to minimize costs, and that as a result, they are blameless in terms of understanding escalating costs.
That is wrong because, contra Verdon, businesses do not seek to minimize costs, they seek to maximize profits. One strategy to do so is indeed to minimize costs, but only if the product being sold is a commodity. I would argue that health care is indeed such a product, but I am in the small minority on the issue. Most people are willing to pay a premium for access to specific doctors and specific treatments centers. So, the private sector is, on the whole, seeking to maximize profits along a differentiated access strategy, not a cost minimization strategy.
In that context, the fact that Medicare and medicaid pay less per procedure is significant.
Also, please recall that if we were to eliminate those programs, you would not simply reduce aggregate expenditures. You would simply reduce who paids and where. There is no reason to assume that aggregate expenditures would diminish, unless you are willing to turn people away from emergency rooms.