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Medicare

Policy areas: 
Healthcare
Rick's thoughts: 

 

What a mess.

 

You've heard about the elephant in the room that no one is talking about? Well this is the bull elephant. The freakishly huge bull elephant. The angry bull elephant. The one chained up to a chain link fence with a bicycle cable like the one some crooks cut when my last bicycle was locked up to the bike rack at Kirkwood Community College in the middle of the afternoon. Not gone in 60 seconds – gone in 60 nanoseconds.

 

It ain't gonna' hold no freakishly huge angry bull elephant, no way.

 

Here's some data. The math is hard, and comes later.

 

The United States spends about twice per capita on healthcare as our European competitors. They spend perhaps $6,000 per person per year, we spend $12,000.

 

Fortunately our outcomes are better. Read Scott Atlas before you jump down my throat about that statement.

 

But they aren't exactly twice as good. Just … better.

 

The fact we pay twice as much as our competitors makes some people think we should copy them. Of course we would end up with their slightly worse healthcare results, but apparently people are willing to live with that (or perhaps die with that?).

 

Copy them usually means 'get more government involvement in health care.'

 

Before we dive into that, let's get some facts out there. About 50% of our healthcare is already run by the government. Add up Medicare, Medicaid, VA hospitals and a fat fist full of other federal programs … about half our total health care bill. The rest is private, sort of.

 

And our competitors are moving away from 100% public towards more private health care, not less. They're copying us. Slowly, to be sure, but pretty consistently. England, for example, has had public health care (the National Health Service, or NHS), ever since 1948. But today perhaps one third of all their health care is private, not public.

 

What's going on? Roughly speaking we can just say those Englishwo/men who can afford to, buy private health care, rather than use public health care. Just like those Americans who can afford to buy bottled water, rather than drinking the free water from the tap. Personal preference, coupled with enough money to do it. In free markets, things like that happen (not to pretend the health care market is a free market, it's just that, in most countries other than Canada, you're still allowed to compete with the government in the health care business – it's not like the post office or the military).

 

Now let's think about another aspect of health care. Costs are going up. Most Americans see this when their insurance premiums go up, not necessarily when the doctor sends them a bigger bill. The insurance company tells us the cost of health insurance is going up, the hospital doesn't tell us anything at all (sad but true).

 

Most of us have figured this out, so there's no need to dwell on it. Costs of health care are climbing faster than the cost of living, and we've known that for a long time.

 

If we strip aside all the ridiculousness in the American health care system (there will not be time to cover all of it, but we'll hit the high points in a bit), the chief driver of increased health care costs is technological progress. What does this mean? It means there are more ways doctors can fix us up today than there were yesterday.

 

Today we can get new knees and new hips and new hearts. My grandpa couldn't buy these for any amount of money.

 

Today we have drugs that allow people with AIDS to live. Twenty or thirty years ago AIDS was a death sentence.

 

I'll let you do your own research to come up with other examples. There are many of them. Each costs money.

 

I don't know about you, but I'm glad we have had a lot of medical progress! It's a feature, not a bug.

 

You could think about it this way. Fifty years ago my cell phone bill was zero. Today it's about $100 a month. Should I be complaining? Well I do complain, because I enjoy complaining, but the reason my cell phone bill went up is because fifty years ago there were no cell phones! It's the same way with medicine – we pay more each year, for things we didn't have the year before. That's called progress.

 

There's another insight that's a bit more subtle. As we get richer, we spend more on health care because we already have enough food, water, clothing, housing, transportation, and a whole bunch of other stuff. Now we'd like to enjoy life, but in order to do that we have to be alive. So we are willing to pay a lot of money – the money that is left over after we have taken care of the necessities – for doctors and hospitals that keep us alive and ambulatory.

 

When we get a raise, we don't spend it on more food, because we are already fat enough. We don't spend it on more clothes, because we're tired of taking practically brand new clothes to Goodwill, just because we bought more brand new clothes. We don't buy a bigger house, because our McMansion is already so big the kids can get lost in it and I swear we used to have three cats didn't we? We don't buy another car, because we already have two for every driver in the house and besides the eight car garage is stuffed to the brim with daddy's other motorized toys.

 

What do we buy with our new money? Healthcare! Bigger breasts and harder penises, laser eye surgery, unnecessary and possibly dangerous mammograms, prostate surgery for cancer that will only kill us when we're as old as Abraham, and a lot of other unnecessary but nice to have stuff. And a lot of really cool stuff, too, that keeps us alive and kicking, like successful chemotherapy and lung transplants.

 

What should we be doing – giving the money to our children, refusing medical care, and dying? Not me, thanks. I like being alive.

 

And I will spend as much money as I need to to stay alive, for as long as possible, discounting those last few months before death, when it is obvious I'm on the way out, and when I'll be more than happy to do without the expense of extraordinary short term measures that just eat up my treasure and prolong my agony. Especially since they won't give me any of the good pain management drugs, for fear I'll get addicted (I don't care! I'm dying! Shoot me up and let me enjoy my last few moments on earth!).

 

Let's review. Medical care is getting more expensive because we are getting more of it. That's good. And it looks like we spend too much for it, that's bad.

 

What to do?

 

The first thing might be this – to understand that nobody needs health insurance, they need health care. Imagine no one in the country had health insurance, but everyone in the country received the best medical care technology could provide. Oh – no need to imagine at all, that's what we had back in 1900. Really.

 

In 1900 there was no such thing as medical insurance, but everybody, including poor people, got the best medical care doctors and hospitals knew how to give. Amazing.

 

People paid cash. If they didn't have cash, they paid with a chicken. If they didn't have a chicken, medical care was given them for free, by doctors who wanted to take care of sick people, and charity hospitals who were given operating funds by rich people.

 

Of course in those days every hospital was a charity hospital, because everyone who could afford to had the doctor come to their house. Who would want to go to where all the sick people were? That would be pretty depressing, and possibly dangerous, so only doctors and nurses did it.

 

Let me repeat – rich people stayed home when they were sick, poor people went to hospitals.

 

Fast forward to WWII and FDR's attempt to manage the economy from Washington (bad FDR, very bad FDR). Wages were frozen (raises were against the law), but factories needed workers more than workers needed factories (in other words – factories couldn't pay enough to get workers out of their hammocks and on to the factory floor). There were bombs to be made. And profits.

 

Clever employers offered workers 'free' health insurance. Apparently this was legal – if you really want to know the precise details read Wikipedia. Or a book. And please correct me when I get it abysmally wrong – I just write this stuff from memory and rely on you, the Iowa voter, to set me straight. Don't forget to include links to your sources! I can't change my word of mouth just because of your word of mouth. Funny how that feels like a one way street … but I ain't turning around at this point ;-)

 

OK we just hit big mistake number one. Employers bought the health insurance and gave it to their employees. Tax free. Bad, very bad. [We can't get into it here, but let's be clear – there is no such thing as 'tax free.' Tax free just means somebody else pays your taxes for you. It's free for you, it costs them. So 'tax free' health insurance means people who don't have health insurance have to pay more tax, so you can pay less tax. Feel good about that? You shouldn't.]

 

Imagine your boss buys you as much pizza as you can eat every day. Or, you have to buy your own pizza. Under which situation are you going to eat more pizza? Correct – when your boss is buying it.

 

Works the same with health care. If your employer is buying your health insurance it feels like free to you. In fact it isn't – your employer is reducing your pay by exactly as much as s/he is paying for your health insurance – but all of us, including me, feel like its free, even when our brains know it isn't.

 

And, since it's free, we take as much of it as we can. Give me a supreme deluxe meatlover's with extra anchovies – it's free to me. Take a bite out of the pizza, thus ruining it for the next guy, and don't bother to finish. It was free anyway, so I didn't waste any (of my own) money when I did it.

 

This occurred when people still didn't really need health insurance. We only need insurance against expenses we can't afford to pay out of pocket. Or don't want to pay out of pocket. Obviously it costs more to buy health insurance than it costs to just pay the doctor directly – insurance companies don't work for free. But as technological progress marches on, the possibility of receiving a big health care bill becomes greater.

 

Suddenly you want insurance, because you don't want to take the chance of getting a big bill (heart transplant anyone?) and either not having enough money, or having to sell your house, your wife and your children in order to pay it. With technological progress, health insurance makes sense for most of us (not Bill Gates, although I can't convince my sister of that, who pretty much refuses to believe Bill Gates doesn't need to worry about paying his heart transplant bill – maybe it's the extra six zeros on his paycheck that confuse her).

 

Enter Medicare. Free health insurance for everyone 65 or over. Who wouldn't want that? And we got it. From the same guy who gave us the Vietnam War and the War on Poverty, by the way, both of which we lost. Care for a trifecta? Thanks a hundred trillion, LBJ.

 

It's not clear to me why anyone would want a medicare program. Insurance for everyone over 65 paid for by every worker under 65? When I think about this I think of Nancy Reagan. She needs my kids to pay for her health insurance? Are you sure?

 

It obviously creates a huge disruption in the marketplace. What insurance provider can compete with free? Now Nancy Reagan is actually forced to use Medicare, because there is no more private market.

 

And my neighbor comes home with a smaller paycheck because he's paying for Nancy Reagan's health insurance. His kids have to skip breakfast. An income redistribution from the poor to the rich.

 

But things get worse. There's an important ratio that's changing. That's the ratio between the check writers, and the check cashers. Between my neighbors and Nancy. You see the more neighbors I have, the less each of them has to pay to keep Nancy healthy. And the fewer of them there are, the more each of them has to pay. Or you can think of it this way – the more Nancys there are, the more my neighbors have to pay. And the fewer Nancy's there are, the less the neighbors pay.

 

So what's happening? Well for one thing, Nancy is living a lot longer than we imagined she was going to. Instead of kicking the bucket at 72, like we thought she was going to do back in 1966, she's hanging on until she's 88 (by now the reader should know Nancy is generic, and no longer specifically refers to the former First Lady who ran the White House based on her astrologer's advice).

 

If health insurance always kicks in for Nancy when she hits 65, but Nancy lives for longer and longer, then at any given time there are more of her around. And that's what's happening. Only a few new workers, and many new Nancy's. The ratio of check writers to check cashers is going down. That spells trouble.

 

Now within the context of the wildly dysfunctional American health care system (correction – the health care billing system, the health care delivery system is, as mentioned above, still the best in the world), Medicare is not the worst of the bunch. It provides OK medical care. No better than private medical care, hopefully not too much worse.

 

There are a bunch of problems, as anyone other than a pure Communist would expect. In Iowa, for instance, the doctor's don't get paid as much by Medicare as they do in some other states (think New York, Massachusetts, California, and all those other left coast/right coast states). But Iowans pay the same Medicare tax (which is 2.9% of your pay, by the way) as New Yorkers. Maybe that's because we only have four congresspersons, whereas they have XX. Or maybe it's because the average New Yorker earns more money than the average Iowan, so pays a higher dollar amount of Medicare taxes each year. But this kind or problem is not what you would call the crux of the climb.

 

The crux of the climb is actually a twin crux. First – medical technology is driving up the quantity of health care everyone consumes. Second – an aging population reduces the check writer to check casher ratio. Over time, this problem gets serious. Perhaps $90 trillion serious. Or maybe $100 trillion, or $80 trillion. Even $110 trillion or $70 trillion. But definitely not a little single digit trillion or a big hundreds of trillions problem. Let's stick with $90 trillion.

 

This is an unfunded liability. Under the present system, that's what the pencil pushers say we will have to pay in Medicare claims, minus what we will collect in Medicare taxes. A funding gap. A black hole. A shortfall. A monstrous problem. A rounding error? No. A real problem.

 

But here's the good news. We can fix it immediately, and permanently, if we choose to. Instead of automatically kicking in when everyone reaches 65, we could move to a flexible retirement age. I explain this in more detail in my social security page (they are more or less the same type of problems, although they are also dramatically different).

 

The basic idea is that getting into the Medicare pool requires you to reach the correct age relative to the rest of the population, but it is not an age set by statute. So long as the Medicare taxes collected can support your Medicare expenses, you get to make the switch. Until they do, you don't. The actuaries (pointy headed people in Washington) can give you a very good guess as to when that will occur, in advance, so you can plan for it. What you can't plan for is something nasty like the 2008/9 recession. But no one else can plan for that either, so you won't be sitting there by yourself wondering what happened (hint: blame the banks, for taking advantage of the laws Congress passed, instead of following the laws Congress wished it had passed, and blame the lawyers for both those phenomena).

 

The consequence of not getting into the Medicare pool as early as you were planning for won't be a medical emergency, like a heart attack or a cancer diagnosis. All it will mean is you will have to continue buying your own health insurance for a while, possibly for a couple of extra years. Yes that's bad, no it's not fatal. I predict full recovery.

 

But, just as with Social Security, there's a good argument against Medicare at all. You might have guessed – it's called the Nancy Reagan argument. Why in tarnation should anyone, much less a young couple trying to start a family and save a couple of bucks to buy a small starter home with a postage stamp back yard, have to pay the bill when Nancy has a small benign tumor removed from her nose? That stinks. The idea - I have no olfactory experience with small benign nose tumors.

 

Here's another argument against Medicare. It eliminates innovation. When you give someone a monopoly, and especially when you give the government a monopoly, then innovation comes to a screeching halt. All of a sudden all those brilliant backyard entrepreneurial minds are no longer trying to figure out how to do something better and cheaper, they're trying to figure out how to sell something to the monopolist. Or meet government regulations (usually carved in granite).

 

When there is no incentive to invent something better and cheaper, things don't get better and cheaper. They get better (we hope) and more expensive. This is exactly what has happened with medical technology. Prices have not plummeted as competition relentlessly pushes quality upward (think computers, think cell phones, think automobiles). Instead you still have to fill out that same paper form every time you go to the doctor's office – the one that's a copy of a copy of a copy of something written on an Apple Macintosh.

 

Let's see – biggest industry in the country, and they haven't computerized customer accounts yet. This is either sad, or tragic, or both. And Medicaid clearly shares a huge part of the blame, since it's a huge part of the industry.

 

This is not the place where I am going to give you a full fledged solution to America's health care billing problem. But it is the place where I get to say – why fix it, if it can be replaced with something wildly better?

Comments

Susan Lewiston's picture

One thing you didn't mention is that those of us on Medicare are not getting it for free. We are paying around $100 a month and it comes out of our Social Security before we get it. Then unless we have Advantage, we also pay a fee for supplemental insurance. So while some of Medicare is payed for by others, we are still contributing also!!!!!!!

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