Jared Bernstein has a good and clear explanation as to why Rep. Paul Ryan’s (R-WI) argument about seniors using “premium support” vouchers to “deny business to inefficient providers” is so horribly wrong:
Suppose you send me to the grocery store to buy you a gallon of milk. Milk costs $3.50 a gallon but you give me $2. I spend the whole day “denying business to inefficient providers”—i.e., grocers who all charge more than that—and at the end of the day, bring you back a pint.
Now, instead of milk, where I’ve got the information I need to be a smart shopper, suppose you give me the same under-priced voucher but ask me to bring you back a plan for treating that strange pain you’ve been experiencing on your left side on humid days.
There’s no “denying business to inefficient providers” in the Ryan plan because there’s no market discipline that average folks with incomplete information armed with an inadequate voucher can enforce on a private health insurance market that’s…well, different.
Part of the problem is that individuals don’t have the market clout of a large employer or a program like traditional Medicare, which are able to secure better prices from providers than future retirees purchasing coverage on their own (under Ryan’s plan) or many other private payers.
Look at this data from S&P tracking the growth of health care costs. As Maggie Mahar points out, over the year ending March 2011, Medicare spending rose at an annual rate of 2.78% — the lowest rate posted for the Medicare Index in its six-year history — while “health care costs covered by commercial insurers rose by 7.57%.” This creates a problem for those who argue that private businesses are magically able to control costs better than government programs:
Why is Medicare cost growth slowing? It appears that “costs for Medicare patients are being better contained than those covered under commercial insurance plans,” observes David M. Blitzer, chairman of the S&P Index Committee. And the provisions in the Affordable Care Act that will put Medicare on the road to financial solvency haven’t even begun to kick in. Meanwhile, conservatives argue that we must privatize Medicare, because taxpayers cannot affords “runaway” government entitlement programs. I wonder how they explain the S&P report.