8. As I’ve already blogged, the vouchers idea won’t help cut health care costs.
and the first part of #10
10. There’s not nearly enough on reforming the dysfunctional supply-side of our health care institutions.
There are two ways that government spending on health care can go down. Either health care itself is getting less expensive, or the government is just paying for less of it. Hint: it’s not the former.
“A private health insurance plan covering the standardized benefit would, CBO estimates, be more expensive currently than traditional Medicare. Both administrative costs (including profits) and payment rates to providers are higher for private plans than for Medicare. Those higher costs would be offset partly but not fully by savings from lower utilization. . . . Moreover, CBO projects that total health care spending for a typical beneficiary covered by the standardized benefit under the proposal would grow faster than such spending for the same beneficiary in traditional Medicare under either of CBO’s longterm scenarios.”
So instead, what’s happening is the government is just paying for less health care. It’s doing this because the vouchers are designed to grow in value more slowly than the cost of health care. That’s where all of the cost savings come from.
Think about it. Does this accomplish anything? Yes, we have added a positive amount to the government’s fiscal balance. But we have done it by taking a larger amount from our aggregate household fiscal balance.
According to the CBO in the current fiscal year roughly $1 trillion of healthcare spending will come from federal tax revenues and federal borrowing (another way of describing federal spending). That’s about 7% of GDP from federal government spending on healthcare alone. Real GDP is roughly what it was a decade ago. Healthcare spending is growing at roughly 5% per year. Assuming no real GDP growth, here’s what the federal share alone of healthcare spending would be at different rates of growth as a percentage of GDP:
|Percent growth||10 Years||20 Years|
and that’s ignoring demographic changes which will almost certanly cause federal healthcare spending to be higher than that. Such is the magic of compounding.
Giving some individuals choices (remember: the Ryan proposal exempts those over 55 from the proposed reform) will not cut costs. Unless you assume that healthcare providers are willing to take a voluntary pay cut, they will potentialize those who are willing to pay and that will increasingly be those who are covered under old-fashioned Medicare.
Although you can reduce the federal government’s long term (i.e. over 30 year) liability as a result of healthcare spending by using the approach in the Ryan proposal, you can’t cut costs while preserving reasonable standards of public health that way. And you will increase federal spending on healthcare over the next 10 to 20 years as Tyler Cowen points out and as I’ve illustrated above.
Yes, there is a Medicare and healthcare crisis. It is probably already too late to deal with it and preserve the general contours of the present system. And the longer we wait to deal with it the more it will have choked from our economic growth.