Tuesday, May 03, 2011

Medicare - The 55 and Older Plan

I see that Michelle Bachmann believes that everyone over 55 gets to keep their Medicare benefits but everyone else should be "weaned off".  She is of course, referring to The Ryan budget plan, which seems nice until we take a close look at what it means.  First, the Congressional Budget Office estimates that the "plan" would cost an additional $34 trillion in expenses to everyone who gets to take part in the "voucher" program.  As noted by Dean Baker, this is 3 times the estimated shortfall for Social Security.

So let's look at it from the perspective of taxation.  It is a well understood principle that those who pay taxes should be the ones who receive the benefits from the taxes paid.  For example, gasoline taxes are using to pay for the roads.  Taking the taxes collected and using it for something else is very bad public policy.

Most pundits are proclaiming the Ryan plan as the end of Medicare.  If the Republican Plan is to end Medicare and turn it into a voucher program, then we need to see if the plan will provide the same value as before.  As Baker and many other economists have shown before, it does not.  And if they really want to wean everybody else off the Medicare idea, then they need to stop collecting taxes for the Medicare program and let everybody else plan for the eventual demise of the program with their own money in their own retirement account.

Their theory is that if people have to shop for insurance in their old age and pay for it with their vouchers and any money they have left over, then the lack of money will provide economic incentive to reduce the price of coverage.  Experience with the auto industry has shown that even without a voucher program, rates will continue to go up due to inflation.  Experience with people who don't even have Medicare show that heatlth care insurance rates continue to rise faster than inflation even without government insurance or vouchers to help them.  What makes Republicans sincerely believe that the elimination of Medicare will reduce the cost of health care given past experience despite the mounting evidence before them?

Instead, the Republicans seem to be intent on eliminating the Medicare program to remove what is most likely the only brake on health care costs that we have.  They seem to recognize that Medicare is a "single payer plan", and that such plans are reviled among conservatives.  Getting rid of the plan would score serious points with the Tea Party now, wouldn't it?  Or would it?  We don't see them talking about ending the Veterans Administration health plan now, do we?  Why is privatization good for Medicare but not VA health care?

Now about that $34 trillion of increased costs that future seniors would have to pay for their insurance.  Future seniors would get a voucher to purchase private health insurance instead of health insurance through the government.  The assumption is that "competition" among insurers would actually bring costs down where the government could not. This is the privatization of Medicare that pundits have been talking about.  Republicans seem to be missing something very obvious in their quest to reduce healthcare costs.  The United States has one of the most highly privatized health care systems in the world, yet we pay more than 3 times the cost per person as other OECD countries.

The trend then, is that privatization has increased the costs of health care in this country, not the reverse.  Why?  Private insurers have to pay for marketing, advertising, overhead, litigation, campaign contributions and lobbying.  For what?  To ensure that their executives are among the highest paid in the world?  Medicare doesn't have to do all that.  Medicare uses empirical evidence to set rates and to determine the best possible treatment.  Private insurance seems to find what works and uses that information to deny coverage to those who need it the most.  The private insurance and Republican message seems to be, "get well soon, or die."  Just ask any cancer patient who has ever had to fight for treatment.

So before they send us off the cliff without a parachute, we need to consider some other alternatives for reducing costs.  There is a lot of talk about competition.  Well how about globalization of health care?  Globalization has worked well for cars, electronics, clothing and tech support.  Why not health care?

The noted economist, Dean Baker, has articulated the solution rather nicely.  By setting up international mutual agreements to trade medical professionals, we can expose our health care system to international competition. This will help to control the costs imposed by health care providers working here while providing ourselves with a broader base of professionals to choose from.  There is also the phenomenon of "medical tourism".  We could allow citizens here to use their "vouchers" to purchase health care in countries that have more efficient systems, further exposing our health care system to international competition.  Remember, all other OECD countries are spending 66% less than we do with better outcomes and longer life expectancies.

Another point, and I'll make this the final one, is that of patents and copyrights in health care.  Few are willing to discuss the chilling effect of patents and copyrights on medical research, devices and techniques.  Fewer still are willing to discuss all the government funded research that leads to patents that eventually impose significant costs to the health care system.  Patents on drugs and medical devices impose very significant costs on health care with drugs and devices that sell for several thousand percent more than the marginal cost to produce them due to patent royalties.

A partial solution to this problem is compulsory licensing of the patent at reasonable and non-discriminatory pricing for patented products that resulted from government funding.  Such a policy would have a ripple effect across the health care industry, forcing pricing down, and allowing greater access to the drugs and devices so desperately needed by our aging population.  The complete elimination of patents for drugs and medical devices would eliminate the rent-seeking behavior that we have all seen from patentees.  That behavior imposes additional costs in the form of litigation, threats of litigation and the inhibition of research and development.  A good recent example of this behavior can be seen as exhibited by the owners of the BRCA1 and BRCA2 breast cancer gene patents.

In summary, there is a lot we could be doing before we even consider the privatization of Medicare.
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