Ways and Means in Health Care

At U. S. News & World Report Brian Riedl does a darned good job of explaining why we must cut health care spending in an op-ed that is largely a series of one-liners, e.g.

The problem is not tax revenues (they will continue growing above historical averages), nor other spending programs (Social Security is the only other major category growing as a share of the GDP).

Rather, health care is devouring the budget.

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For context, the entire federal budget has remained around 20 percent of GDP for the past 50 years. Each percentage point of the GDP translates into $190 billion, or $1,500 per household. So that overall growth from 3 to 9.3 percent of GDP would eventually require a permanent tax increase of $9,450 per household – a figure that would rise with incomes each year.

Federal spending cannot grow faster than the economy indefinitely. At some point, something has to give. And the “easy solutions” are fool’s gold:

Cut defense? It is already on track to fall from 4.7 to 2.7 percent of GDP between 2010 and 2027 – leaving it at 1930s levels.

Tax the rich? The amount of annual income earned over the $1 million threshold currently totals 4.4 percent of GDP – one-third of which is already paid in federal taxes. At most, an additional one percent of GDP could be extracted before exorbitant marginal tax rates begin changing taxpayer behavior, harming the economy and costing revenue.

Single-payer health care? Sen. Bernie Sanders’ 2016 proposal was scored as adding $32 trillion in new costs over the decade, in part because American proposals avoid the sacrifices and limitations that other countries mandate.

Just keep borrowing? According to the CBO baseline, the resulting national debt would bring crushing interest costs that eventually bankrupt the federal government.

[…]

Finally, lawmakers should not forget a Medicare system that currently collects $140,000 in lifetime taxes from the typical retiring couple and then provides them with $422,000 in benefits (all adjusted into net present values).

Unfortunately, his implicit proposals for lowering the costs don’t accomplish that. What would accomplish that? A single-payer system might reduce costs by trimming administrative costs. Then again they might not. I think that administrative costs are higher here than anywhere else in the world because of low social cohesion, lack of trust, and general acquisitiveness, none of which will be changed by a single-payer system. In other words I think our administrative costs are higher because our administrative costs are higher.

What would cut costs? Abandoning the fee for services system, making providers accountable for outcomes, and cutting total payrolls within the health care sector would do it. Very few have shown any enthusiasm for any of those measures let alone all of them at once.

A fully market-driven health care system would accomplish it, too, but lack of willingness to accept that is what got us into the fix in which we find ourselves in the first place. It would mean that the poor receive little health care and the elderly would be penurized by their care.

At this point the greatest likelihood is that every single one of the bad consequences that Mr. Riedl lists in his op-ed will actually come to pass. That will continue as long as patients demand more care than they’re able to pay for and providers demand more money than we can afford.

7 comments… add one
  • Ben Wolf

    If it is impossible for a country with immense wealth to effectively provide quality health care, or a secure wage, or an education, or a home affordable to young families then we must seriously question the justifications for that country’s existence.

  • It is impossible for any country regardless of wealth to provide quality health care without restraint on the growth of wages in the health care sector.

  • steve

    Duh. We already knew that health care will take up the entire budget if it follows historic trends. Nothing new there. So, this is just really an attempt to defend Medicaid cuts. Medicaid accounts for less than 10% of total health care spending in the US, about 5% of of the Federal budget and about a third of Medicare spending. Yet cutting Medicaid spending is the key to cutting healthcare spending? Don’t buy it. Medicaid is the low cost provider in the federal system, and few private insurers pay less than does Medicaid. So why are we cutting where costs are already the lowest? This is a political act, not budgetary.

    Just to clarify, if you follow the debate on Medicaid, providers dislike it, and conservatives criticize it, because it pays less that everyone else. That means some docs don’t accept it. Conservatives are convinced it causes cost shifting. (It probably doesn’t.) Somehow, providing less money to Medicaid, but block granting it will suddenly cause Medicaid to pay higher fees to physicians (really all providers including hospitals) while lowering total spending. What a fantasy. We need to be finding ways to lower the payments made by Medicare and private payers to something closer to Medicaid rates.

    Steve

  • Somehow, providing less money to Medicaid, but block granting it will suddenly cause Medicaid to pay higher fees to physicians (really all providers including hospitals) while lowering total spending. What a fantasy. We need to be finding ways to lower the payments made by Medicare and private payers to something closer to Medicaid rates.

    Yes, those are very much my points. I think that cutting Medicare spending is more likely to reduce costs, something of which you are skeptical, but I agree with you about Medicaid.

  • steve

    I think Medicare spending can be cut, and I probably agree with you more than you seem to think. I just think that how you do it matters an awful lot.

    Steve

  • Jimbino

    How is it that Walmart, Amazon and Harbor Freight continue to offer ever better products at ever lower costs? Is it because they compete in a real market, publish all their prices, respond to price signaling and don’t accept insurance payments for their products?

    Woe to us if we ever see the day when gummint declares food, sex, travel and an internet connection to be civil rights and institutes a taxpayer-subsidized private insurance marketplace to provide them.

  • Janis Gore

    Walmart doesn’t sell a damn thing that costs $50,000, and most of their products come from overseas. Heart surgery do not come at Walmart prices. And never will.

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