The Return of the Myth that Competition will Fix Medicare
Crossposted at The Street Light.
Well, it seems as if Congressional Republicans are going to propose a complete refashioning of the Medicare program. Specifically, they are going to recommend scrapping Medicare as a provider of health insurance to seniors, and instead replace it with a system that will provide subsidies to individuals who will then buy health insurance from private insurance companies. In other words, they want to get the federal government completely out of the health insurance business for senior citizens.
GOP 2012: overhauls on entitlements and taxes, $6.2 trillion in cuts over decade
House Republicans plan to propose Tuesday historic changes to Medicare, Medicaid and other popular programs that pour federal money into Americans’ lives, arguing that a sacrifice now will keep those programs solvent for the future.
…On Medicare, Ryan will propose altering the plan so that the federal government no longer acts as a health insurer for seniors. Instead, he would create what’s called a “premium support plan.” Seniors would pick from a list of private insurance plans, and Medicare would subsidize their coverage.
The idea, again, is to use market competition to create a system with lower costs. Ryan’s plan would not apply to Americans age 55 and older, for whom Medicare would remain under the current system.
The notion that Medicare costs have been rising because it is a government-run health insurance program, or because it is not a “competitive” health insurance program, is odd, to say the least…
Theoretically, economists can list a number of very specific ways in which the markets for health care and health insurance are characterized by market failures. And for those of you who have forgotten your Econ 101 lessons, please recall that economic theory clearly predicts that when there are market failures there is no reason to necessarily expect that competition (i.e. the free market solution) will provide a good outcome.
Providing yet another example when economic theory actually matches what we see in the real world quite well, we find that there is absolutely no evidence that competition among private health insurance companies leads to lower costs. The Kaiser Family Foundation conducts a survey of employer-sponsored health insurance programs every year to estimate private health insurance premiums. Health insurance premiums for workers in large companies — those employing 200 people or more, which encompasses about 65% of all workers covered by private, competitive, employer-sponsored health insurance plans — rose by 135% over the ten year period 1999 to 2009.
Meanwhile, Medicare spending per person rose by about 103% over the same period. (Note that to get this figure I simply divided total Medicare costs from the CBO (pdf) by the number of Medicare enrollees as provided by Census (pdf).)
Given this, I’m really baffled by this repetition of the assertion that more competition in the market for health insurance is the answer. There’s no theoretical justification for it, and no empirical evidence for it. The fact is that people in the US consume more health care services every year. So every year we pay more.
Keep your gov’t hands off my Medicare!
😉
Of course its hard to say how many believe this and how many jsut want a big pool of money to fund more tax cuts.
Kash, I find it intriguing to see so little difference between the populations (0-65 (age upon which eligibility for medicare begins)) and 65-79.5 (average age at death for Americans (78 for men 81 for women)). I would submit that the major portion of the difference in your chart is because a larger portion of the population aged and approached eligibility requirements. If I am correct we should see those numbers reverse as the number of those eligible increase. (That ole Baby Boomer impact.)
It seems to me that medical costs (doctor’s visits, hospitalizaton costs) have actually increased along with the spread of health insurance among the general population. I have no empirical evidence, but anectdotally, when GP’s were single practitioners, they had a nurse who usually doubled as bookkeeper, but as insurance coverage became “the norm”, doctors both had to hire more clerical help and they began to go from single practices to groups. Now an entire health care industry is in place, and I wonder if it’s a round robin? Doctors charge more because they have higher costs (and specialists get paid more than GPs so we have a shortage of GPs now), insurance companies pay out more, so they raise premiums. Which is why I don’t see Ryan’s plan working – because unless and until we get the profit motive out of health care (both by providers and insurance companies) we will continue to see spiraling costs. Does Senator Ryan think the vouchers will be increased to the moon? Republicans like to tell us these cost increases aren’t sustainable, and I agree, but privatizing the system is not going to bring down costs. Period. This is just a back-door way to give Big Insurance the poltical cover they want. Oh, yeah, and the HCAs of the world – look what Mr. HCA is doing in Florida! Jeez!
Yeah right. That is the way it is suppoed to work, but it doesn’t. The bigger players just buy the smaller ones, until 3 or 4 control 90% of the market. Then by definition and in plactice they do not compete on price.
Briefly, 2 reasons why increased competition by insurance for the subscriber can not ever solve the rising cost of healthcare.
First is that health insurance is not the market of concern as noted in your link to market failures. The market is between the patient and the provider. It is the only market regarding health care the product of which is the application of the knowledge of health and healing.
Second. Increasing competition within a private market system of competition in any way serves to reduce the effect of risk pooling on cost of insuring against risk. You can not increase the number of pools and expect the overall cost of the risk to come down. Risk pooling consolidation is happening and thus the economic benefit of reduced cost is happening. Unfortunately that economic benefit is not reserved for the general population but instead for the ever fewer private insurers. Also unfortunately, the private market reduction of risk pools (thus larger pools) also leads to monopoly market power.
The reason for number 2 is because what one is insuring for there is only on solution to the problem. When one is ill, one can not decide not to have one fixed (baring any true nonfear of death which in this country is a factor driving health care costs) for an other option. Say, buying a new “one”. Thus, the segmentation of the pool within a monopoly power true market fails.
Monopoly power can not be managed in a governance system such as ours. It must be removed to nonexistance. It is the “mandate” of the constitution via the constitutions purpose toward ever greater equality of power.
In other words, private market health insurance as a solution to reducing health care cost is delusional in the true sence of the word:
4. Psychiatry . a fixed false belief that is resistant to reason or confrontation with actual fact:
Is it just me, or does this proposal sound like Obamacare for Seniors?
Can someone explain how this is different from Medicare Advantage (part c?)
Yeah, this is Ryan’s voucher system. I posted about this on my blog yesterday.
It won’t work. Michael Cannon is passing it off as “cost savings”, but it’s not. It’s cost shifting.
As my post here yesterday showed (discussing Interstate Health Insurance sales), increased insurance competition does not yield lower premiums…in fact, the inverse is likely to occur, or at least has historically.
I’m actually writing a post right now for Dan on the Free Market in Healthcare, and needless to say, there are a number of mechanisms which prohibit healthcare from behaving like any other commodity.
The Medicare voucher idea, only rises at the rate of overall inflation, but healthcare spending has outpaced inflation by a fair amount for years (6.2% per year over the past decade). All this idea does is price seniors out of healthcare altogether, at least over time.
There is this notion, perpetuated by Mr. Cannon, that since the CEA announced that 30% of Medicare’s costs could be saved without adverse consequence. that this implies that that 30% represents over utilization of medical resources by enrollees.
However, that is NOT what the 30% represents, at least not in totality. The majority of that is composed of fraud, waste, and abuse of the system…not by the patients, but by providers and hospitals.
Moving to a voucher system won’t fix any of that. Again, cost shifting, not saving.
Ridiculous parlor trick. That’s all it is.
So, the reason we couldn’t have a federal insurance plan as an opt-in choice was that it would be ‘too competitive’ for private insurers to compete with. How will private insurers achieve better pricing for patients than a larger pool public plan?
A: it won’t even try to, but it can extract more profits, and the invisible hand will ration health care.
I’m not a Ryan fan, but having been in deep since 1976 (oh Lord I am old) I can tell you politicians and bureaucrats have done a good job of paying $1.50 for $1.00 worth of care, not to mention incentivizing lots of economically dysfunctional behavior.
Obamacare is betting the ranch on accountable care organizations, and it looks like the bureaucrats are going to screw that up royally.
Republican death panels.
It’s really the incentivization as you note that has driven healthcare costs. We pay almost nothing for cognitive care, and pay way too much for procedurally based care.
IOW, if I am seeing a cardiologist for my intermittent, ongoing chest pain, he/she has far more incentive to perform a diagnostic catheterization, than to review my record, spend time looking at my EKG’s in a serial fashion, and really sit down and counsel/discuss the various options for the patient.
Instead, it is far more lucrative to simply walk into the room and say, “Well, I think we should do a cath. We need to get to the bottom of this, and find out what’s really going on”.
That has to change, which is WHY I have been such a proponent of alternative payment mechanisms such as prometheus.
We incentivize volume over value, and quantity over quality.
Ryan’s voucher system will not change that in the least.
God bless President Obama:
http://www.washingtonpost.com/national/complex-health-care-law-turns-into-payday-for-consultants/2011/04/01/AFPkQXQC_story.html
Let’s see if I have this right. The government is going to send a senior a check. All these insurers are going to jump for joy to provide affordable (to a senior) policies. Logic tells me that few seniors are going to be able to afford these competitive, seniors based, insurance plans and the older and more they need the care, the less they will be able to afford them with that piddling voucher. Well, if my logic isn’t failing me, the Democrats will need to start legislating for a Constitutional amendment adding euthanasia to those vouchers since they are the compassionate crowd.
Tom, LOL…….:)
Ryan and all supporting Humbug factories are betting the Mayans are right, if not the global warming will take care of it all.
In that future the poor and old can do a “Roth”, for the public good.
It is funny in a sad sort of way. 🙂
Health care in the US is a cartel, which has effectively created a chronic shortage of health care in the US, by restricting the development of health care resources. An inadequate supply of doctors, for instance, engineered by the AMA, to keep their fees high. Killing the “Public Option” was to squelch comepetition with the insurance industry, allowing them to keep their premiums high.
What do you think it means, that over 48 mil aren’t covered? Means a shortage.
Like any shortage of supply, this drives up prices.
I agree with Save the Rustbelt (whom I trust implicitly on matters health care), vouchers for insurance is unlikely to bend the cost curve very much.
Overall, Ryan’s plan will force more costs onto recipients, not necessarily a bad thing since this will create at least some disincentive to overuse. In addition, one of the things Ryan is trying to accomplish is means-testing Medicare. Under the Roadmap, Ryan has proposed that vouchers cover $11,000 of the cost of a private health plan, which he has said is the average amount of money that Medicare now spends on a beneficiary.
That amount would increase with inflation, and take into account both the consumer price index and its medical care component. Beneficiaries choosing less expensive plans could flip the extra government payment into a medical savings account to pay for other medical costs or to buy long-term care insurance.
Ryan has proposed that those with incomes between $80,000 and $200,000 get half of that amount, and that individuals with incomes above $200,000 get 30 percent.
Thee are the factors that will reduce Medicare costs and I think they are a good idea.
Why should the taxpayer pay for the medical expenses of people who make $80K plus per year, just because they are over 65?
Sammy,
It’s not the means testing. That would not necessarily be the worst thing. The worst part is tying the voucher amount to standard inflation. Unless the incentives are changed, and unless healthcare cost inflation is reduced, this will only progressively price many seniors out of the healthcare market altogether.
My wife’s father is 83…retired farmer…NO savings, NO retirement….He’s living in a nursing home now, and relies entirely on SS and Medicare.
My grandmother is 88…small retirement, relies almost entirely on SS and Medicare. Has a secondary insurance which covers almost nothing….and has to be very careful with expenditures in order to make ends meet.
THESE are the people this will hurt….Have you priced a policy on an 80 year old with several health conditions?
Also, my understanding, and I’m still reading the bill, but my understanding is that the voucher amount is indexed to 2010 dollars.
This is cost SHIFTING…it does nothing, absolutely nothing to address cost increases, and the need for cost savings…..
Yeah, but I just got offered a gig representing a national health provider organization as the legislative director…..
Volunteer though….
That’s what made be chuckle….
MH,
This is cost SHIFTING…it does nothing, absolutely nothing to address cost increases, and the need for cost savings…..
Yes, I agree. But Ryan’s is not a Health Care Reform Act, it is a Budget Act, designed to lower Federal spending. http://www.roadmap.republicans.budget.house.gov/Issues/Issue/?IssueID=8520
So it’s a bit disingenuous for the WaPo and Kash to criticize the Roadmap on this basis.
I also agree with the point you made: Have you priced a policy on an 80 year old with several health conditions? Who the heck is going to insure this person?
One of the main problems with the Health Care market is the prevelance of third party payers that creates very little incentive for consumers to price shop, therefore providers have very little to reduce costs and prices, as it does every other market for goods and services. To lower costs we need less insurance, not more.
First is that health insurance is not the market of concern as noted in your link to market failures. The market is between the patient and the provider. It is the only market regarding health care the product of which is the application of the knowledge of health and healing.
Absolutely. And while I think we should have single payer insurance, where I part company with other supporters is the absurd, sacrosanct idea that all treatment decisions should be left to the doctor and patient, as if there should be no rational cost control.
A: it won’t even try to, but it can extract more profits, and the invisible hand will ration health care.
Wrong. IT will extract more rents.
There’s no free market mechanism that I’m aware of that can incentivize quality. Only way to have rational allocation of medical resources is the non-market, top-down way. I wish it wasn’t so, but it is.
But Ryan’s is not a Health Care Reform Act, it is a Budget Act, designed to lower Federal spending.
LOL.
A budget charade.
Ryan’s plan amounts to taxing medicare (and SS) to pay for the military industrial complex and tax cuts.
Not serious about budgets if he thinks the US needs 10 super carriers in 2021.
Those who do not study history are doomed to relive it.
The reason that we have Medicare in the first place is that private insurers will not sell health insurance to seniors.
Ryan’s voucher plan is a complete farce because no private insurance company will sell health insurance to seniors regardless of who is paying for it.
I challenge any supporter of Ryan’s voucher plan to show me any private, for profit insurance company willing to sell health insurance to seniors.
Actually, I think they will sell it given time because I think the voucher plan is just another way to fully privatize the medicare money that is collected. I can that if the voucher plan becomes the process, the model of the advantage plans becomes the insentive of sorts. That is congress hands out the money via vouchers and then cries that the companies just can’t do it, but now that we’er a private system congress has to support them with money to offset their losses. “It’s just so said that We are forcing the poor insurer to have to suffer the process of insuring the elderly. We need to help them. ” That is what I can hear from Ryan et al.
Ummm…unless you have a bright shiny badge declaring you in charge of the lexicon, cent21 can say “profits” where you would say “rents”. That’s especially true since, outside of stilted economic jargon, “rent” stopped being used to mean what cent21 apparently means by “profit” a long time ago.
So “Wrong” is, well, you know, wrong.
Robert Ball wrote a brief history of why Medicare was created that supports Spencer’s claim. You will find the 13 pages here.
Robert Ball was directly involved in the creation of Medicare.
I fail to understand the love affair that some appear to have with healthcare insurance companies. Talk about a bunch of thugs when the chips are down… And some of those healthcare insurance thugs are wearing skirts.
Every budget is a policy document. Spending levels and methods determine policy outcomes. Ryan is advertising his charade (thanks, ilsm) as a budget document, but it is largely substance-free outside of the Medicare and Medicaid programs. For you to declare the Washington Post and Kash “disingenuous” because they recognize what you either cannot or will not recognize is a step beyond disingenuous. You are either understand what you are talking about and have decided to be dishonest, or don’t understand and don’t really have any standing for making statements while the adults are talking. For the life of me, I can’t tell which it is.
spencer-Have you ever heard of Medicare Supplement plans? As a matter of fact it is “guaranteed issue” for the first six months after enrollment in Part B. That’s selling healthcare to seniors.
As a 69 year old I pay extra to be in a Medicare HMO — a form of Medicare supplement.
But the supplements are limited in scope and the insurance companies are able to calculate what their potential liabilities are very closely– something you can not do for comprehensive health care
for seniors — virtually all of who have preexistence conditions.
My own personal bet on how we resolve the Medicare mess is that we will all get some form of “basic” Medicare coverage that we will be able to “top up” with supplements.
Thanks MG — that was a very good article
kharris – “Ryan is advertising his charade (thanks, ilsm) as a budget document, but it is largely substance-free outside of the Medicare and Medicaid programs. For you to declare the Washington Post and Kash “disingenuous” because they recognize what you either cannot or will not recognize is a step beyond disingenuous. You are either understand what you are talking about and have decided to be dishonest, or don’t understand and don’t really have any standing for making statements while the adults are talking.”
kharris,
Sammy is correct. Your claim about the House Budget Committee Chairman’s Mark is bogus in terms of the financial summary provided by Chairman Ryan.
The majority of the projected 2012-2021 Federal Budget savings recommended in the Chairman’s Mark do not come from reductions in spending for Medicare or Medicaid.
Projected total savings for 2012-2021 are $6.214 trillion in comparison to the President’s FY2012 Federal Budget proposal, of which the Chairman’s recommended Medicare savings represent 6.26% and Medicaid savings represent 11.83% of total savings.
Projected total savings for 2012-2021 are $5.812 trillion in comparison to CBO’s FY2012 Federal Budget baseline analysis, of which the Chairman’s recommended Medicare savings represent 0.52% and Medicaid savings represent 13.26% of total savings.
You would have known that if you had read all of the Chairman’s Mark. Apparently, you didn’t do that very carefully if at all.
So much for your supposed adult standing in discussing the House Budget Resolution.
liberal,
Sammy is correct. The total savings of the House Budget Committee Chairman’s Mark in comparison to the President’s FY2012 Federal Budget proposal are $6.214 trillion from 2012-2021. Roughly 44% of the savings do not involve Medicare, Medicaid, and Obama Healthcare bill expenditures and that is excluding the additional 15.53% savings created by reducing Net Interest payments resulting from the overall expenditure reductions in discretionary and mandatory spending.
ilsm – “Ryan’s plan amounts to taxing medicare (and SS) to pay for the military industrial complex and tax cuts.”
That’s pretty funny. I would like to see you back up that claim.
Have you read the Chairman’s Mark?
kharris,
There is a third option: that you are not understanding what I am saying. Ryan doesn’t really pretend that the voucher plan will bring down the cost of health care, as the Post implies. He is saying that it will bring down the cost of Medicare through a variety of means.
The contribution of a free market in insurance is undoubtedly one of the least amongst the several initiatives in Ryan’s plan. The rest of the initiatives, if you read them, function to make the Medicare recipient more accountable for his health care consumption, as opposed to the current system where they can access it for any reason, as often as they want. This is the mechanism for reducing Medicare costs.
Can private insurance ensure the Medicare population?
Yes, it could. We have this figure:
The average amount spent per recipeint is $11,000.
So that is the average loss. From there you can determine your premium. Ryan’s subsidy per Medicare recipient is $11,000.
One problem is that the premium will have to be greater than the average loss, say $13,000. So the average Medicare recipient wiould have to take a $2,000 deductible to get Medicare-equivalent coverage. This is the cost shifting.
The other option for a Medicare recipient is to buy a less extravagant plan than Medicare, perhaps with higher deductibles, less choice, etc., (more cost shifting). Then the subsidy would cover the insurance cost, or even be over it. So if you want to go to the doctor anytime, any place, anything, (like Medicare) you still can, but you have to pay for it.
So this is the genius of the Ryan plan. Of course there is the pesky adverse selection problem, but this could be dealt with. But what this system does is force the recipient to self-ration and that will reduce Medicare costs to the taxpayer.
You are saying private insurance would match the spending of medicare, with a bit of profit of say 20%. I find that quite hard to believe if the history of insurance premiums is taken into account that such a figure would result without a steady decline in services in the basic plan and increasing use of higher deductibles and such. That is the trend.
And only some people with medicare advantage have the sort of ease of use you describe sammy…way too glib of a description of just medicare.
Medicare is health insurance offered by the Federal government to people who are 65 or older, people under age 65 with certain disabilities, and people of any age with End Stage Renal Disease (ESRD) – permanent kidney failure requiring dialysis or a kidney transplant) , who meet the eligibility requirements. Medicare helps pay for health care, but does not cover all medical expenses. The United States Medicare system is managed by the Centers for Medicare & Medicaid Services. Read these articles to determine your eligibility.
Medicare has four parts:
• Medicare Part A (Hospital Insurance) is the original Medicare coverage which helps pay for inpatient hospital care, and helps cover skilled nursing facility, hospice, and home health care.
• Medicare Part B (Medical Insurance) is for people who qualify for Medicare. It helps cover doctors’ services, outpatient care, and home health care, and helps cover some preventative services to maintain your health and to keep certain illnesses from getting worse.
• Medicare Part C or Medicare Advantage Plans (like HMOs and PPOs), offer health coverage options run by private insurance companies approved by and under contract with Medicare. It includes Part A, Part B, and usually other coverage like prescription drugs.
• Medicare Part D is the newest addition to Medicare. It is a prescription drug option run by private insurance companies approved by and under contract with Medicare, that helps cover the cost of prescription drugs and may help lower your prescription drug costs and help protect against higher costs in the future. You must be enrolled in Medicare before you can apply for Part D coverage.
also
http://www.medicare.com/medicare-coverage-basics/medicare-premiums-and-coinsurance-for-2011.html
many medical people either already limit medicare patient numbers or do not take medicare patients….the anyone, anytime, anywhere is…..wrong to imply.
The real myth is that someone age 75 can actually buy private health care insurance (primary, not supplemental). A policy for single age 75 person has been estimated to $40,610 or 143% of median income. And that is after the Medicare contribution under Ryan’s “plan”.
http://www.cepr.net/documents/publications/ryan-medicare-2011-04.pdf
That was the whole point of Medicare, to provide a cost effective solution to an uninsurable risk.
Ryan boasts that Part D Prescription Drug coverage costs less than planned. That’s like saying the Iraq War costs less than planned. Part D added 40% to the already unsustainable Medicare cost curve. If you want your money back for Part D, buy pharmaceutical stocks, they got $3 for every $1 of patient benefit.