Health and Wealth, part 2

This is part of a series on ideas to deal with the increasing cost of health care. Part 1 is here.


On the other hand, the Center for American Progress has two new brief studies out. One is Medicare Matters: There’s No Easy Medicare-Only Fix for Health Costs.

The study lists current proposals for changes to Medicare, in particular, designed to lower costs of medicare.

They include privatizing Medicare (the old standby / cure-all of the Bushies), limit access to Medicare, cut benefits, and shift costs to grandma and grandpa. Here are the versions of those ideas now on offer.

• Privatizing Medicare, as some have called it, would move Medicare from a benefit
offered by public insurance to a contribution toward private insurance. Given evidence that the private sector is no more efficient at providing care than traditional Medicare— and indeed even less so—such a shift would only generate substantial Medicare savings if its “contributions” toward private insurance failed to grow with the costs of care. The result would be increased burdens on beneficiaries—not lower health care costs. This would merely be a different way to shift costs back to vulnerable populations.

• Raising the age of eligibility for Medicare would provide little benefit to Medicare’s financing and cause significant harm to its beneficiaries. Medicare beneficiaries age 65 to 67 are the least likely to be sick and therefore the least expensive. Such a change would also likely increase the number of people who lack insurance, particularly in an environment where employers are cutting back on retiree benefits.

• Cutting Medicare’s benefits would increase out-of-pocket spending that already poses substantial burdens on Medicare households. According to a new study by the Kaiser Family Foundation, health care spending in 2006 absorbed three times as much household spending for Medicare households than for working-age households—14.1 percent and 4.3 percent, respectively.

• Charging more to higher-income Medicare beneficiaries. Given the practices of the nongroup insurance market, excluding even the highest-income older people from Medicare eligibility would expose them to the risk of being uninsured. Although some at the top are able to pay higher premiums, the Medicare program already charges greater premiums for those making $80,000 a year or more. Generating more significant savings for Medicare would mean raising premiums for moderate-income elderly whose burdens are already substantial.

Unfortunately, reality intervenes.

Most people who are eligible for Medicare are not rich enough to bear the extra burden and little would be saved by this tinkering. According to the CAP,

The Congressional Budget Office found that if the $80,000 income threshold was lowered to $64,000, Medicare would save only $1.4 billion in 2009—or less than 0.3 percent of total Medicare spending. The Kaiser Family Foundation study cited above found that only about 15 percent of beneficiaries had per capita incomes above $41,000 per year. There are too few seniors and persons with disabilities who make enough in income to find large savings through this mechanism.

A second new report by the Center for American Progress is Entitlement Reform Means Fixing the Broader Health System: Medicare and Medicaid’s Budget Challenges

The CAP report takes the position that it is the growth in healthcare costs that is a the cause the problem of affordable health care and that this problem cannot be solved by taking on just pieces of the healthcare system.

But the far bigger challenge facing both programs is the same one that is making private insurance unaffordable for more and more businesses and individuals: rising health care costs.

Thanks largely to the introduction of new technologies, health care costs have grown an average of 9.8 percent each year—2.5 percentage points faster than the economy as a whole.

Thus, while it may be attractive to cut or limit access to healthcare through programs like Medicare or Medicaid, because they directly affect only discreted parts of the system, those approaches will not solve the problem. Those programs are also attractive targets, at least in the case of Medicaid, because they serve the poor and less powerful. That makes them easy targets. In addition, Medicaid is provided through the states, and we have a lot of states in desperate economic straits. This brief issue report articulates arguments for change and provides brief responses.

A third and longer discussion of the issues is the March 4 testimony by Judy Feder of the CAP Action Fund before the Senate Special Committee on Aging. That testimony can be found here.

And most important to understand: There just is no easy fix.

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