If You Want To Cut Health Care Costs, You Probably Shouldn’t Adopt The Health Industry’s Favorite Idea

Sarah Kliff did some reporting on how the health care industrial complex views the idea of raising the eligibility age for Medicare, and to make a long story short they think this is a great idea: “Key health care players tentatively lean toward raising Medicare eligibility age, especially when it’s compared to other entitlement cuts that the deficit-reduction supercommittee could make.”

The reasons are somewhat complicated, but also profoundly simple. The health care industry charges one price to Medicare, a different higher price to insurance companies, and a third much-higher price to individuals. The smaller your purchasing pool, the higher the price that industry can charge. Consequently, shifting marginal people out of Medicare is lucrative for the health care industry. By the exact same token, if you’re interested in reducing health care costs, what you want to do is listen to executives of health care companies and then go do the reverse. Rather than raising the Medicare eligibility age, we ought to be lowering it. That would require new tax revenue, but the amount of new taxes it would cost would be lower than the reduction in private health care spending. Alternatively, and semi-equivalently, we could embrace a Medicare “buy-in” or add a public option with Medicare-linked payment rates to the coming health care exchange. Both domestically and internationally, it’s clearly the case that the way to reduce health care costs is to adopt more statist payment systems. UK health care is cheaper than Canadian health care is cheaper than American health care. In America, Medicare is cheaper than private insurance.

Interestingly, this used to be well-understood. From the end of World War II up through the Hillarycare episode, the main conservative argument against increased government provision of health care was precisely that by reducing costs it would reduce profits and thereby reduce innovation.

More recently, conservatives have tried to take up the reverse banner and claim that health care prices are high because of government subsidies and that therefore free market solutions will reduce health care prices. This is, however, contradicted by all the available evidence along with the voluminous history of conservative whining that government-funded health care would be too stingy. What’s more, I’d note that the general conservative picture of publicly provided goods being lavishly financed is clearly mistaken. The theory that voters will overinvest in spending on public services because it’s “other people’s money” is contradicted by the plain fact that Barnes & Nobel is more spacious than a public library, that city bus interiors aren’t as nice as charter buses, etc. Medicare is just the same. If your goal is to make taxes as low as possible, then of course raising the Medicare age is better than lowering it. And many people do have that goal. But many of those same people also claim to believe that it would be desirable to reduce America’s excessive spending on health care. If that’s your goal, then the solution is clearly higher taxes and broader Medicare eligibility. Just ask some health care industry executives!