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On Sunday, GOP House Speaker John Boehner and Budget Committee Chairman Paul Ryan agreed with President Obama's assessment that "we do not have an immediate debt crisis." But, as both sides similarly acknowledge, the longer term is a different story. In future decades, it is health care spending in general and Medicare in particular that is at the root of the problem. (That the U.S. also badly needs more tax revenue is a discussion for another time.)  But with their plan to privatize the system that currently provides coverage for almost 50 million Americans, Republicans have almost every trend completely backwards. After all, traditional government-run Medicare is not only less expensive than analogous private insurance, its per capita costs have been rising much slower than private premiums for decades. And as it turns out, over just the last few years projected Medicare costs have dropped rapidly, suggesting the future may not be as dire as feared.

As Sarah Kliff reported in the Washington Post ("Want to debate Medicare costs? You need to see this chart first") on Friday, that's the clear implication of the chart above from the new Economic Report of the president. In a nutshell, the chart shows the trajectory for Medicare spending as a percentage of the American economy if the program grows at the much slower rates since 2009 compared to the much higher earlier projections. In February, the New York Times' Eduardo Porter explained:

Earlier this month, the Congressional Budget Office said that by 2020 Medicare spending would be $126 billion less than it predicted three years ago. Spending over the coming decade, it added, would be $143 billion less than it forecast just last August.
All told, the CBO now predicts that total Medicare spending for the decade between 2010 and 2020 will be $511 billion less than the agency estimated just three years ago. (In the 2012 fiscal year, Medicare spending per beneficiary grew just 0.4 percent.)  "If that cost growth persists, it could make all the difference for Medicare," Kliff pointed out. "The entitlement program would, by 2085, make up 4 percent of the economy instead of the previously projected 7 percent." To see the next four charts, continue reading below the fold.

But whether or not the much slower growth rate in U.S. health care spending persists is, as Ezra Klein aptly put it, "the $2.7 trillion question." To be sure, Americans of all ages have deferred health care due to the recession, a trend that could likely prove temporary. But as the Post and the Times documented, recent cost-saving changes in the ways the government and insurers are already compensating hospitals and physicians will accelerate as a result of the Affordable Care Act.

If the recent slowdown in cost growth were to become permanent, Kliff stressed, it "could completely reorient the typical Washington discussion of Medicare as a budget-buster." Still, Jared Bernstein warned, "We're not going from unsustainable to sustainable." Especially if growth in Medicare spending were to return to the higher levels previous forecast by the CBO. As Ezra Klein explained the meaning of the graphs above:

What these three charts tell you is simple: It's all about health care. Spending on Social Security is expected to rise, but not particularly quickly. Spending on everything else is actually falling. It's health care that contains most all of our future deficit problems. And the situation is even worse than it looks on this graph: Private health spending is racing upwards even faster than public health spending, so the problem the federal government is showing in its budget projections is mirrored on the budgets of every family and business that purchases health insurance.
Klein's warning that "private health spending is racing upwards even faster than public health spending" is especially true for Medicare. While there is heated debate about the size of the gap, there is little doubt that the administrative overhead of government-run Medicare is significantly lower than that of private insurers. That is also true of the private Medicare Advantage programs currently used by about 20 percent of beneficiaries. As it turns out, Medicare Advantage policies on average not only feature higher administrative costs, but cost the government much more in monthly premiums than the traditional "public option" Medicare. As Klein explained two years ago:
The Medicare Advantage program, which invited private insurers to offer managed-care options to Medicare beneficiaries, was expected to save money, but it ended up costing about 120 percent of what Medicare costs.
In 2011, Nobel Prize-winning economist Paul Krugman turned to data from the Centers on Medicare and Medicaid Services to illustrate the comparative cost-savings to the United States Treasury.

"Medicare actually does a better job of controlling costs than private insurers—not remotely good enough, but better," Krugman explained. As for the implications of shifting American seniors into the private insurance market on Uncle Sam's nickel:

If Medicare costs had risen as fast as private insurance premiums, it would cost around 40 percent more than it does. If private insurers had done as well as Medicare at controlling costs, insurance would be a lot cheaper.

It's a mystery why anyone claims that shifting more people into private insurance is a good idea. Actually, no, it isn't a mystery; it's an outrage.

It's also exactly what Republicans propose to do in their fiscal year 2014 budget proposal unveiled last week by House Budget Committee Chairman Paul Ryan.

In 2011 and again in 2012, 98 percent of Republicans in Congress voted for the Ryan budget and its scheme to privatize Medicare. But while Ryan has moved from a pure voucher scheme that would eliminate traditional Medicare altogether to a "premium support" that would keep public Medicare as one option in competition with private insurers, the results differ only in degree. As private insurers deny coverage, jack up premiums and cherry-pick healthier customers, the value of the premium support will prove insufficient and dramatically shift health costs to seniors.

Looking at the CBO's March 2012 assessment of the revised House GOP budget, ThinkProgress explained why version 2.0 of Ryan's voucher program was little better than the first:

Beginning in 2023, the guaranteed Medicare benefit would be transformed into a government-financed "premium support" system. Seniors currently under the age of 55 could use their government contribution to purchase insurance from an exchange of private plans or—unlike Ryan's original budget—traditional fee-for-service Medicare...

But the budget does not take sufficient precautions to prevent insurers from cherry-picking the healthiest beneficiaries from traditional Medicare and leaving sicker applicants to the government. As a result, traditional Medicare costs could skyrocket, forcing even more seniors out of the government program. The budget also adopts a per capita cost cap of GDP growth plus 0.5 percent, without specifying how it would enforce it. This makes it likely that the cap would limit the government contribution provided to beneficiaries and since the proposed growth rate is much slower than the projected growth in health care costs, CBO estimates that new beneficiaries could pay up to $2,200 more by 2030 and up to $8,000 more by 2050.

Despite Ryan's claims that his theory of "competitive bidding" by private insurers will magically reduce Medicare costs per beneficiary, there is no real world test case to substantiate it. But as the baby boomers start to retire, Medicare's vital role in reducing poverty among the elderly is beyond question.

As the fifth and final chart above shows, it's not just Social Security that helps keep millions of American seniors out of poverty. Despite the dire warnings from  Republicans about the 1965 legislation creating it (including Ronald Reagan, who lamented "one of these days, you and I, are going to spend our sunset years telling our children and our children's children what it once was like in America, when men were free"), Medicare has literally helped transform lives. Before Medicare, half of seniors had no health insurance at all, a crisis which has been virtually eliminated. And the poverty rate for Americans 65 and older was cut in half in fewer than 10 years. Far and away the poorest age group in 1959, the elderly saw their poverty rates plummet from 35 percent to 9 percent by 2010.

All of which is why, even with his willingness to cut $400 billion from Medicare over the next decade, President Obama wants to "mend it, not end it." Building on the success of government-run Medicare, Obamacare expands preventive services for beneficiaries while reforming the fee-for-service system that give physicians and hospitals perverse incentives to order more office visits, often unnecessary tests and costly (and even dangerous) readmissions. And to further control costs when they exceed yearly targets, the Independent Payment Advisory Board (IPAB) can make recommendations Congress can override.

Needless to say, Paul Ryan's new GOP budget wants to repeal all of it. His privatization plan, he insists, "strips unaccountable Washington bureaucrats of their rationing power." Responding to charges that his voucherization of Medicare will inevitably lead to rationing, Ryan argues:

"Rationing happens today! The question is who will do it? The government? Or you, your doctor and your family?"
Of course, the real culprit is the very private insurance market Republicans want to put in charge of Medicare. And as the five charts above show, that won't be a pretty picture.

Originally posted to Jon Perr on Mon Mar 18, 2013 at 02:59 PM PDT.

Also republished by Daily Kos Economics and Daily Kos.

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Comment Preferences

  •  Rising health care costs infect everything (4+ / 0-)

    government, and the private sector, do.

    When people hold up the red herring comparison that America spends more on education than other countries, one of the reasons for that is all the health care costs wrapped up into the staff and student services that we account to education.

    A 10% increase in health insurance costs across 50 teachers ~ 1 full time teacher salary. Do that every year and your education budget is in a world of hurt.

    Over half of all medical spending in the US is paid for by government, for its wards, its employees, retirees, and the disabled.

    Every time you want to build a bridge, you have to cover the health care and worker's comp costs for those workers.

    Fry, don't be a hero! It's not covered by our health plan!

    by elfling on Mon Mar 18, 2013 at 03:47:29 PM PDT

    •  Insurance is a racket -- one of our prime examples (1+ / 0-)
      Recommended by:

      of middlemen taking a "cut" for providing no service.
      That said, when people are sick or injured, they need to be cared for.
      Medical care is a disutility. That is, people would rather not need it and, if the service is high quality, they don't need it for long. The problem with letting private profit-oriented enterprise deliver a disutility is that this inverse relationship between quality and need is contrary to their business model. When private enterprise does well, it looks to increased demand and ever increasing profit. People being healthy and not needing care is a real downer.
      Ideally, we organize public corporations to deal with disutilities. However, the private sector in the U.S. has always counted on being suckled by the public teat. What the free market boils down to is taking free goods (natural resources) to market for a profit. It's been that way ever since traders traded beads for beaver pelt and then sent for the troops when the natives complained about being cheated.
      The U.S. is a country of ex-men. They


      Now that natural resources are getting depleted, they exploit their own kind behind the shield of money. Money plays the role of middleman and disguises who's cheating whom.

      We organize governments to deliver services and prevent abuse.

      by hannah on Mon Mar 18, 2013 at 04:08:09 PM PDT

      [ Parent ]

  •  How clever of Ryan to bring up rationing. (1+ / 0-)
    Recommended by:

    Will he now admit that Congress has been rationing dollars for decades, all under cover of the myth that Congress does not in fact control the purse, having handed the management of the currency off to the Federal Reserve? Probably not. After all, there is nothing more delicious than exercising power without having to take responsibility for the negative effects.

    Why is it that the Treasury, which disburses dollars that banksters then lend back for safe-keeping, pay out dividends instead of charging for the service? Tradition. And to let the banksters get fat without having to do a lick of work.

    To add insult to injury, the banksters are totally upset because the dividend rate they used to get about twenty years ago was over eight percent and that's been reduced to near three. See, with compound interest, eight percent will double the money in less than ten years. At three percent, they might be dead before they see that event. Because, of course, the Cons looking for a sure thing are all old men.

    The purpose of federal taxes, btw, is to keep the money in the current -- moving. Hoarding is what causes stagnation.

    We organize governments to deliver services and prevent abuse.

    by hannah on Mon Mar 18, 2013 at 03:54:53 PM PDT

  •  "Medicare for All." (2+ / 0-)
    Recommended by:
    howd, RadGal70

    Looks better than what's in store for the young 'uns, otherwise...


    "This is NOT what I thought I'd be when I grew up."

    by itzik shpitzik on Tue Mar 19, 2013 at 05:58:33 PM PDT

  •  Paul Ryan is a rat (1+ / 0-)
    Recommended by:

    As usual, good work with the charts. Thanks for the encouraging info.

    look for my eSci diary series Thursday evening.

    by FishOutofWater on Tue Mar 19, 2013 at 06:29:32 PM PDT

  •  Health care is a racket, and this discussion (1+ / 0-)
    Recommended by:

    ignores a couple of (pardon the expression) elephants in the room.

    One elephant is the proportion of elderly in the population.  I might be wrong about this being ignored -- it might already be built into the projections -- but I should mention that we are going through the meat of the baby boom. That'll cause some high costs for a while -- after which, not so much.

    A bigger elephant is that Medicare does not equal private insurance, by which I mean a notable percentage of doctors do not take Medicare.  That doesn't just mean more difficulty getting treatment, it may mean treatment at the hands of inferior doctors.

    Another elephant is doctors gaming the system, peforming needless procedures as a way to extract more money from the Medicare system. There was a rather famous article in The New Yorker 4-5 years ago that showed Medicare costs were nearly 3 times higher in McAllen, TX than in the Minnesota home of the Mayo clinic. The difference was the willingness of the McAllen doctors to perform procedures as opposed to caring for their patients.

    The biggest elephant of all, however, is that insurance companies have no incentive to cut costs on a year to year basis so long as they can pass costs on to policy buyers.  The ACA only amplifies that fact with its requirement that 90% of premiums be paid out to service providers.   Coupled with a requirement that we all buy insurance (from them) and a government pledge to subsidize that insurance, it is a recipe for ever-higher costs.

    The corollary elephant is that providers are the biggest drivers of cost.  So long as there an incentive to do more and more tests, to prescribe the latest drugs, and to do more procedures, that will continue to be the case.

    LG: You know what? You got spunk. MR: Well, Yes... LG: I hate spunk!

    by dinotrac on Tue Mar 19, 2013 at 06:53:53 PM PDT

  •  Repubs are fighting like hell to raise poverty (0+ / 0-)

    rates back up to 1959 levels (as shown on that last Census chart). It looks like the Bush Depression Era has succeeded in significantly impoverishing people from ages 0 to 64. The only folks left they'd really love to steal from are the over 64 people.

    Just doing my part to piss off right wing nuts, one smart ass comment at a time.

    by tekno2600 on Tue Mar 19, 2013 at 10:16:31 PM PDT

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