Romney vs. Obama on Medicare

A friend of mine recently sent me this article by David Brooks who makes the case that Romney/Ryan are more serious about medicare reform:

Moreover, when you look at the Medicare reform package Romney and Ryan have proposed, you find yourself a little surprised. You think of them of as free-market purists, but this proposal features heavy government activism, flexibility and rampant pragmatism.

The federal government would define a package of mandatory health benefits. Private insurers and an agency akin to the current public Medicare system would submit bids to provide coverage for those benefits. The government would give senior citizens a payment equal to the second lowest bid in each region to buy insurance.

This system would provide a basic health safety net. It would also unleash a process of discovery. If the current Medicare structure proves most efficient, then it would dominate the market. If private insurers proved more efficient, they would dominate. Either way, we would find the best way to control Medicare costs. Either way, the burden for paying for basic health care would fall on the government, not on older Americans. (Much of the Democratic criticism on this point is based on an earlier, obsolete version of the proposal.)

Here's my response:

The reason why Medicare works as well as it does in the way it provides affordable access to health care for our elderly is because it's subsidized through the tax code.  In other words, the entire working population, collectively, are chipping in to provide health care to our elders.   The elderly are our most expensive health care recipients and making sure we provide for them at a time when they are at their most vulnerable without breaking the bank is a really, really tough problem to solve.

What Ryan is proposing here is basically an Obamacare-like exchange for the elderly.  Unlike Obamacare, he's providing a public option.  I'm assuming the public option is different from traditional Medicare because it will be funded by premiums instead of through the taxes.  Otherwise, medicare premiums will always beat private insurance (since tax payers are footing most of the bill).

So, the elderly will receive a voucher to pay for the lowest bid, private or public.  But all insurance companies would have to provide a minimum level of benefit defined by a "assigned board of technocats?"  He doesn't say how this minimum level of benefit will be defined and by whom, but it's sounding suspiciously similar to Obamacare for the elderly.  The problem is an exchange filled with a population of people over 65 will, by definition, be far more expensive than an exchange filled with people under 65.  I hope this is obvious.

The problem I see is that you either enforce a pretty generous set of benefits in which the elderly's health care is provided for at much the same levels medicare does so today.  In that case, I don't see much of a difference from today's system, and I also don't see it saving any money better than traditional Medicare.

Alternatively, you prescribe much more degraded level of benefits, and the elderly are forced to come up with the difference out of pocket.  In this case, you shift the burden from the government onto the elderly.

Where I think Ryan gets this whole thing incorrect is that he thinks if we just provide a regulated marketplace for insurance, competition will drive costs down.  This is wrong in my opinion.  I just don't believe there is a free market solution for elderly health insurance.  Without government support, not a single private insurance company with any interest in making a profit would offer health insurance for those near their life expectancy.  The risk is too high.

I'm not sure there's anything much we can do given the demographic realities our country is facing.  I do offer two suggestions.  Try to offset our aging demographic by allowing a lot more young people to immigrate here: people who can help pay for and take care of our elderly.  Second, hope that we can achieve more innovation, automation, and robotics in our economy, so we can produce more with less.  Why work when robots can do it, and we can all retire and live on medicare if we can automate health care.

The immigration problem is a bit of a red herring, because we would actually be stealing the labor resources from other countries to shore up our own deficiencies, this will exacerbate their demographic problems while helping our own.  I think more automation is actually something we're seeing, allowing us to produce more output with fewer of us working.  We'll have to make sure this doesn't produce high inequalities by the concentration this wealth into the hands of the few to the detriment of the many.  We'll see.

But with an aging population, we will have to bite the bullet and take care of them. I'm not sure there is any other way.   And this is expensive. I'm not sure there's any way around it.  It's a tough problem.

I'm proud of myself because Yglesias  makes a very similar point here. 

Indeed, while at a superficial level there’s a sharp philosophical contrast here between the GOP’s faith in the private sector and Obama’s faith in bureaucratic management but in fact both approaches rely on effective central planning. To make the vouchers work, regulators need to adjust the value of each person’s voucher for age and health status and need to define a minimum acceptable benefits package. Regulators capable of doing that well should also be capable of effectively managing a government-run program and vice versa.

The real difference between the two plans is subtle and relatively small compared to the point of consensus. Under either version, seniors will face the novel situation of potentially being denied useful medical treatment on the grounds that Medicare can’t afford to pay for it. Over the long term, something along those lines is likely inevitable, but it’s striking that both sides have arrived at the exact same figure for how much it’s reasonable for Medicare to spend. Given how far apart the parties are on other economic issues—tax rates, health care for the nonelderly, the appropriate level of environmental regulation, and so forth—the meeting of the minds on the appropriate federal financial commitment to retirees’ health care is truly striking. Even more striking is that since both sides basically agree, we’re getting no real debate over whether this GDP+0.5 percent number makes sense or where it comes from.