It’s Not All about Baby Boomers
It is common for people to think, or assume, that projected growth in Medicare costs is primarily a result of retiring baby boomers. But the graph below, from Austin Frakt, shows that if the rate of increase in Medicare spending were just a function of growth in the population of seniors, our long-term budget outlook would be in much better shape:
The darker blue is the growth in costs attributable purely to the aging of the population. The infographic in the last post suggested that the elderly portion of the U.S. population is not extraordinarily high by international standards. The point here is that cost trends do not reduce to demographics in any case.
The Limits of Cash
In a post titled “In Defense of Cash,” Karl Smith winds up identifying an interesting problem with the idea of replacing social programs with cash programs:
Cash rocks. Or to be more specific liquidity rocks. Both individually and socially. Its great for all your occasions, cancer and liquidity traps.
Its also great for decentralized exploration of creative ways to satisfy preferences.
The problem is that its bad for showing tribal allegiance. One can show up to a friends house for dinner with a bottle of wine as gift but not $40 in cash. I let everyone know that would gladly take the cash, but my wife says “this is why no one wants to have dinner with you.”
There is a similar problem replacing Medicare with cash.
Presumably the thought here is that even if we could replace Medicare with a well-designed cash program that could credibly promise adequate benefits and not cause cataclysmic disruptions in the delivery of care, there would still be the added problem of the signaling effects of such a policy change. In other words, this is the idea that law has an expressive function in society—that people want the law to be what we stand for when we’re at our best.
I don’t really buy it, but it’s an interesting idea.
Anyway, back on Earth, there are plenty of substantive reasons to worry that Medicash/Cashcare would just make things worse for our troubled healthcare system. Ultimately, the problem is that people aren’t naturally very good risk managers and, as Ezra Klein suggests, when it comes to seniors’ health we’re dealing with more of a “when” kind of risk than an “if” kind of risk. Which means that the public will likely end up paying for pretty much the same stuff we pay for now; we just won’t have as much cash in the treasury to pay for it all.
The Deficit Problem, in One Graph
There are lots of ways we could get the federal government deficit under control in the short and medium term, if we really needed to. But there is really only one way to control the long-term deficit: to rein in the growth in health spending. Look at this:
The yellow line shooting up is the projected growth of the U.S. budget deficit (as a percentage of GDP) if current health spending trends continue. The light blue line drifting slowly downwards is what our budget outlook would look like if health cost trends in the U.S. were scaled down to match trends in other high-income OECD countries.
The Center for Economic and Policy Research declares, “The U.S. health care system is possibly the most inefficient in the world: We spend twice as much per person on health care as other advanced countries, but we have worse health outcomes, including a lower life expectancy.” If we want to fix the long-term deficit problem, we have to address the problem of exploding health spending. In the long term, there is no other deficit problem.
Via Austin Frakt.
Medicare Reimbursement Graphic
Kaiser Health News has a nice little interactive graphic that tells you regional Medicare reimbursement rates per enrollee all across the country. The latest numbers (from the Dartmouth Atlas Project) are for 2007, but the graphic also shows rates in 2000 and calculates the rate of spending growth. The darker the green, the higher the spending.
Miami tops the charts at $17,274 per enrollee. That’s compared to $8,682 per enrollee nationally. Our friends down in McAllen, TX clock in at $15,695 per enrollee, but the real story there is their 10.3% growth rate since 2000—compared to 4.7% growth nationally.
Click to go to KHN interactive map. Source: The Dartmouth Atlas Project.
A Conundrum at the Heart of Health Reform Politics
Old people tend to be conservative. Conservatives don’t like government-financed health care. But old people fiercely defend government-financed health care (Medicare).
What’s going on here? How are we to understand this contradiction? It seems there are only two possibilities.
1) Medicare is a good deal for old people, and they defend it out of self-interest. Other conservatives tolerate it out of respect for their elders, or fear of their elders’ political power.
2) Conservative opposition to government-financed health care is a mirage. That is, conservatives do not actually oppose government-financed health care. They may think they oppose government-financed health care, and say they oppose it, but they actually oppose other things that they mistakenly designate with the label “government-financed health care.” What they are actually opposed to is some kind of dystopian future under a totalitarian socialist regime, or some such.
Under option #1, there is rampant duplicity and bad faith. Under option #2, there is a kind of mass delusion. Is there any other explanation available? And if not, which one of these is it?
How Would the IMAB Work?
Tim Jost gives a nice précis of the Senate bill’s IMAB provisions here:
A signature feature of the Senate bill is the creation of a new 15-member independent Medicare Advisory Board composed of health care, health policy, and health economics experts as well as representatives of employers, third-party payors, consumers, and the elderly appointed by the President that is responsible for presenting Congress with proposals for reducing excess Medicare cost growth. In years when Medicare costs are projected to exceed a target rate, the Board will be required to make a proposal to reduce cost growth, which will go into effect unless Congress, following expedited procedures develops an alternative proposal. The Board’s proposals cannot ration care; raise taxes or Part B premiums; change Medicare benefit, eligibility, or cost-sharing standards; or reduce payments for providers whose payments have already been reduced by the market-basket adjustments, which will limit the Board largely to reducing Part C or Part D expenditures. The CBO scored the Board as saving $23.4 billion over 10 years.
There has been some confusion, as Slate’s Mickey Kaus illustrates, about the significance of the fast-track mechanism under which Congress would consider revisions to the IMAB’s cost-cutting proposals. Kaus quarrels with the notion that the procedural mechanism will place any real limits on the ability of future Congresses to reject the IMAB proposals:
Congress could reject its proposals without substituting equivalent savings anytime it wanted to ([as long as it] could obtain the President’s approval or override his veto). The Reid bill simply says Congress would have to substitute equivalent savings if it wanted to use a ‘fast track’ filibuster proof legislative pathway it sets up (a pathway that still allows a presidential veto). Future Congress’ [sic] don’t have to use that fast-track and no law Congress passes this year can make them, as far as I can see . . . .
Actually, that’s not quite right. In fact Reid’s bill says that any future bill to repeal or modify IMAB recommendations is “not in order” unless it achieves the targeted savings. (See the Act, p. 1019-20.)
That means that any bill, fast track or slow, that fails to meet the savings target will be subject to an objection, or point of order. (Note that we’re really just talking about the Senate here. House rules permit sweeping waivers of such procedural niceties.) If the point of order is sustained by the Chair, the bill is dead—unless there are 60 votes to waive the requirement or appeal the Chair’s ruling. No doubt some parliamentary chicanery will be available in some circumstances to evade the requirements, but similar procedural mechanisms are effective in other contexts (notably, the budget process) and are by no means an empty gesture.
But couldn’t a future law simply change the rules and axe the IMAB recommendations? Not without 60 votes in the Senate. Any bill proposing to repeal or modify the IMAB procedures would be out of order under Reid’s bill—and thus would have to overcome the 60-vote waiver threshhold.
Kaus also misreads the bill’s (admittedly odd) provision giving Congress an opportunity in 2017 to discontinue the IMAB by joint resolution. Kaus writes that Congress could kill the IMAB “by joint resolution, without the President’s approval.” In fact, joint resolutions do require presidential approval; concurrent resolutions do not. And this joint resolution will require three-fifths majorities—not exactly a sure thing.
The real innovation here—and what makes the IMAB different from MedPAC (that’s the Medicare Payment Advisory Commission that Congress so loves to ignore today)—is the bill’s “default” mechanism: if Congress fails to enact substitute legislation within 7 months1, then the IMAB proposals will take effect automatically, without need of congressional or presidential approval.
- The IMAB would be required to submit its proposals by January 15 of the year prior to implementation. If superseding legislation were not enacted by August 15, the Secretary of HHS would implement the proposals . See the bill, the Patient Protection and Affordable Care Act, pages 1000-53 of the pdf. [↩]
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