How The GOP Budget Misdiagnoses America’s Health Care Crisis

The Republican approach to reforming the health care system is based on the idea that skyrocketing health care costs are the result of government intervention in the insurance market:

But many reformers have misdiagnosed the root cause of these problems. It is not a failure of the market, but the ways the market has been distorted largely due to government policies and programs. They have undermined the doctor-patient relationship and removed the individual patient from the decision-making process.

It’s unclear how Medicare and Medicaid are undermining the “doctor-patient” relationship — patients can chose any physician who accepts Medicare or Medicaid and doctors have full discretion over treatment decisions — or that these programs are solely responsible for escalating costs.

In fact, blaming “government” for the fiscal crisis ignores the fact that private health care spending grows at the same rate as public spending:


The GOP budget argues that “government spending tends to be less efficient than spending in the market,” but that too doesn’t square with the facts. A range of studies demonstrate that Medicare’s lower administrative costs, ability to bargain for lower prices, and lack of profit margin allow it to “provide a given level of benefits for less than they would cost through private insurance.”

The public Medicare plan’s administrative overhead costs are “in the range of 3 percent.” The overhead costs of large companies that self-insure is 5 to 10 percent of premiums), companies in the small group market spend 25 to 27 percent of premiums, and individual insurance spends 40 percent of premiums on administration. According to the Congressional Budget Office (CBO), “administrative costs under the public Medicare plan are less than 2 percent of expenditures, compared with approximately 11 percent of spending by private plans under Medicare Advantage.” In fact, a recent General Accounting Office report found that “in 2006 Medicare Advantage plans spent 83.3 percent of their revenue on medical expenses, with 10.1 percent going to non-medical expenses and 6.6 percent to profits — a 16.7 percent administrative share.”

Medicare and Medicaid spending cannot be addressed without restructuring the entire health care system — reforming payment mechanisms, getting everyone into the system, coordinating care etc. Republicans, however, are simply kicking the can down the road. While their Medicare proposal would privatize the Medicare system, their plan to reform Medicaid could leave the poorest and neediest Americans without coverage.

The Republican budget would ‘modernize’ the Medicaid benefit by “converting the Federal share of the Medicaid payment for acute care services into an allotment tailored for each state’s low-income population, indexed for inflation and population growth.” “The reform enhances State flexibility and States’ sensitivity to spending growth,” the budget claims.

In other words, if the GOP has its way, the government would select a base year for spending on acute expenditures, grow that portion by indexing it to inflation and population growth, and promise to match state spending up to that amount. (Under the current system, the federal government reimburses the states without limit). But several problems arise:

1. Will the government index to general population growth or the growth in low income Americans? During an economic down-turn, as more Americans become eligible for Medicaid, won’t states would be forced to limit eligibility or cut benefits?

2. What happens to beneficiaries if the state uses up all of the allotted federal dollars?

3. The budget only deals with acute spending and ignores the much more expensive long-term care. In other words, the Republicans are simply kicking the can down the road.

4. How exactly will this enhance “state flexibility?” The Federal government requires states to cover certain services and people, but states have a good amount of discretion in deciding how much to spend on the program. Given that some states are particularly stingy when it comes to Medicaid benefits, what does “more options” mean? Can states kick people with disabilities off of the Medicaid rolls?