“Health Care Costs”

As Stan Collender says the key thing for any fiscal adjustment plan to say on the cut side isn’t really how much money you’re cutting, it’s what things do you want the government to stop doing. Once you name the things, you can total up the savings. Then you can either say you’ve cut enough, or else you can go back and name more things.

Among other things, I think talking in these terms would help clarify what it is people are saying about Medicare. Right now what Medicare basically is is an unconditional guarantee to provide unlimited health care services to senior citizens. The question we face is whether we want to keep doing that. If we do, we need to pay a lot more in taxes. If we don’t, then we need to decide what the alternatives are.

The most straightforward thing would be to put Medicare on a fixed budget. Then Medicare administrators would need to ration Medicare dollars. This is a big conservative bugaboo, but conservatives don’t like unlimited spending either so Paul Ryan came up with the idea of putting Medicare on a fixed budget and privatizing Medicare. This lets naïve people tell themselves that Ryan has devised an alternative to rationing whereby privatization saves money. But what actually saves money in the Ryan Roadmap is the hard cap on Medicare spending. The difference is that under his plan insurance companies would make the rationing decisions instead of Medicare administrators.

A semi-alternative to either of these things is just to start paying less money per unit of service. Medicare isn’t a monopsony purchaser, but it is a sufficiently big market that relatively few providers will just say no to it. The issue here is that profits drive innovation. If we start paying less for prescription drugs, the prescription drug industry will attract less capital. If we start paying doctors lower salaries, medical school admissions will get less competitive. I think there are some okay options along these lines, but there’s still only so far you can really press them. If the government is willing to pay whatever it is that “health care for old people” costs then, over time, health care costs, and thus federal spending, are bound to increase faster than GDP.