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A moral alternative for curing Medicare's ills

We can cut Medicare costs without sticking it to the elderly. Some methods are in the healthcare reform law, much of which Rep. Paul Ryan wants to repeal, and some have been beaten down over the years by the medical and drug lobbies.

June 05, 2011|Michael Hiltzik
  • Rep. Paul Ryan (R-Wis.) speaks at the Faith and Freedom Conference in Washington.
Rep. Paul Ryan (R-Wis.) speaks at the Faith and Freedom Conference in Washington. (Molly Riley, Reuters )

Jon Huntsman informed me the other day that I have incurred a moral responsibility.

Huntsman is a former GOP governor of Utah and, until recently, President Obama's ambassador to China. Back stateside now, he's joined the throng of Republicans struggling to achieve enough name recognition to attract more than a thimbleful of reporters if and when he announces his candidacy for president. To that end, he issued his moral challenge to me, and to you, in a Wall Street Journal op-ed last week.

The subject was Medicare.

More specifically, it was the proposal by House Budget Committee Chairman Paul Ryan (R-Wis.) to "solve" our budget deficit crisis by handing Medicare over to the private health insurance industry and sticking its elderly enrollees with more of its costs, to the extent that out-of-pocket healthcare costs for the typical retiring 65-year-old would consume half of his or her Social Security.

Ryan and Huntsman call this "saving" Medicare. Huntsman declared in his article that anyone who disagrees with Ryan's approach has a "moral responsibility" to identify alternatives. Though I'm loath to receive moral instruction from a politician on an attention-seeking binge, this is one challenge I'll accept.

Let's begin with the easy part. One of the basic flaws of Ryan's plan is that he folds Medicare's long-term fiscal problem into the near-term problem of the federal deficit. But these are two very different things. As Henry Aaron of the Brookings Institution observes, the current government deficit is the result of an enormous tax cut mostly for the wealthy, of paying for two wars by credit card, of the Great Recession, and of spending to address that recession. Recovery will address at least some of that, and restoring income tax rates to pre-Bush levels would go a long way toward managing the rest.

Medicare's ills are wholly separate, except insofar as ginned-up panic over the current deficit is driving Washington politicos to hack away at the program so they look like they're doing something.

Medicare's ills are entwined with our national system of healthcare — how it's used and how it's distributed. You're not going to make a dent in the problem unless you change the underlying system. Ryan's approach doesn't lay a finger on that system, except to magnify its inefficiencies and expense.

Not that his solution to the problem of a larger federal bill for Medicare services isn't simple: He just transfers more of the expense to elderly enrollees. He also proposes to place more of the program in the hands of private insurance companies, which have higher overhead costs than traditional Medicare. The bipartisan Congressional Budget Office has found that by 2022 the costs under private plans would be as much as 34% higher than equivalent services under traditional Medicare.

So Ryan's double whammy of charging seniors a larger share of a more expensive program doesn't really "cure" Medicare, any more than one cures a case of tennis elbow by lopping the offending arm off at the shoulder.

To be charitable, the free-market rationale for sticking enrollees with more of the bill is that as consumers with "skin in the game" they'll be more discriminating about the services and treatments they demand, thus holding down costs. Unfortunately, the consumer-driven model has been widely discredited: Studies suggest that strapped patients forgo not only ineffective but effective treatment, that they lack the expertise to judge what's necessary and what's not, and that consumers are vulnerable to multimillion-dollar ad campaigns by drug and device companies pushing them into uninformed decisions.

So what's the "moral" alternative, Mr. Huntsman wants to know. In fact, plenty of research points to ways to extract excess costs from the healthcare system and to alter its embedded incentives to reward efficient and effective care rather than just lots of care.

Some of these methods were enacted last year as part of healthcare reform, much of which Rep. Ryan proposes to repeal. The healthcare act reduced payments for Medicare Advantage plans, HMO-like plans that have turned into lavish giveaways to health insurers. The act will save $136 billion over 10 years by trimming those government handouts to insurers, according to a CBO projection. Ryan would put insurers in the saddle.

The act also establishes an Independent Payment Advisory Board, or IPAB — 15 presidential appointees, approved by the Senate, empowered to examine Medicare costs if they exceed certain benchmarks and recommend reductions, which would have to get an up-or-down vote in Congress. Ryan wants to abolish the IPAB, even though it doesn't exist yet and even though Washington dickering already narrowed the types of expenditures it's permitted to consider. Anyway, the Congressional Budget Office estimates that it could find $16 billon in savings over a decade.

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