As should surprise no one, having failed to deal with the most pressing challenge in reforming our healthcare system in the first round of healthcare reform last year, the second round has begun. Wisconsin Republican Congressman Paul Ryan has fired the opening salvo with a proposal of his own for controlling Medicare costs:
Starting in 2022, new Medicare beneficiaries will be enrolled in the same kind of health-care program that members of Congress enjoy. Future Medicare recipients will be able to choose a plan that works best for them from a list of guaranteed coverage options. This is not a voucher program but rather a premium-support model. A Medicare premium-support payment would be paid, by Medicare, to the plan chosen by the beneficiary, subsidizing its cost.
In addition, Medicare will provide increased assistance for lower- income beneficiaries and those with greater health risks. Reform that empowers individuals—with more help for the poor and the sick—will guarantee that Medicare can fulfill the promise of health security for America’s seniors.
Here’s how David Brooks characterizes the plan, which is only one component of a much more sweeping proposal for spending reduction in Washington:
The Ryan budget doesn’t touch Medicare for anybody over 55, but for younger people it turns it into a defined contribution plan. Instead of assuming open-ended future costs, the government will give you a sum of money (starting at an amount equal to what the government now spends) and a regulated menu of insurance options from which to choose.
Equally unsurprisingly the plan is being called radical.
The rising costs of Medicare and Medicaid are not merely a Republican bugbear. Last week the CBO (again, unsurprisingly) announced the last round of healthcare reform will cost more than the original estimates.
Tyler Cowen presents some reasons why Cong. Ryan’s approach to cost control may not be effective:
- Individuals have serious misconceptions about the science, or the badness of a particular condition, even in light of government or other third-party advice. Or perhaps individuals simply do not understand the nature of all of the choices at hand.
- Perhaps an individual will choose “no coverage for lung cancer,” but the government cannot precommit to the outcome of no coverage. Of course as cost control becomes more pressing, we’ll have to learn precommitment for at least some issues, one way or the other, so this cannot be a decisive objection. The entire premise behind the discussion is that we cannot cover all treatments through government subsidy.
- Over time, perhaps a government Board can rebalance the mix of coverage better than an individual can. People age, possibly lose some mental faculties, science advances, costs change, and so on.
- Those are good arguments. They are good arguments for a mixed system. They are not good arguments for ruling out all individual choice of benefits. They are not good arguments for ruling out a scenario like that outlined in the first paragraph of this blog post.
To determine whether the Ryan plan can succeed we might want to start by defining success. I would define success as an approach that reduces healthcare costs while preserving reasonable standards of public health. I see little reason to believe that the plan will succeed by that definition. However, if your definition is reduce the future healthcare liabilities of the federal government if fully implemented it might well succeed.
In bullet point form here’s why I don’t think the Ryan plan will succeed by my definition of success:
- For a market-based plan to succeed (presumably the reason for its emphasis on individual choice), there must be a market. There is no market in healthcare.
- The plan deals only with the demand side of the equation and patients aren’t the only ones responsible for creating demand in healthcare. Providers create their own demand.
- There’s a supply problem as well as a demand problem.
- There are both frequency (number of procedures performed) and amplitude (cost per procedure) problems in healthcare. Healthcare costs are the sum of the individual cost per procedure over the total number of procedures performed. To control costs we must constrain both.
- The Ryan plan does nothing to constrain costs other than limiting how much the federal government will pay.
- Continuing to cover those over 55 under the present system means that the cost problems of the present system will be with us for thirty years or more.
- That deadline is likely to cause the present system to be potentialized, i.e. costs for Medicare may rise faster as a consequence of the Ryan plan than they otherwise would.
- We can’t wait 30 years for costs to be brought under control. Healthcare is already 17% of the economy (with the federal government paying about $1 trillion of that). It is on track to comprise more than 20% of the economy within a few years.
- The list goes on.