Friday, November 11, 2016

And Here We Go, Indeed: The Death of Medicare

Talking Points Memo tells us that Paul Ryan intends to phase out Medicare and replace it with a private insurance plan for the elderly.  The New York Magazine tells us a little more:  That Ryan is lying and just wants to kill Medicare.  Trump didn't talk about Medicare in his campaign, so there's no way to know if he likes Ryan's idea or not.  But here's the gist from a Fox interview with Bret Baier:

“Your solution has always been to put things together, including entitlement reform,” asks Baier, using Republican code for privatizing Medicare. Ryan replies, “If you’re going to repeal and replace Obamacare, you have to address those issues as well. … Medicare has got some serious issues because of Obamacare. So those things are part of our plan to replace Obamacare.”
Ryan tells Baier, “Because of Obamacare, Medicare is going broke.” This is false. In fact, it’s the complete opposite of the truth. The Medicare trust fund has been extended 11 years as a result of the passage of Obamacare, whose cost reforms have helped bring health care inflation to historic lows. It is also untrue that repealing Obamacare requires changing traditional Medicare. But Ryan clearly believes he needs to make this claim in order to sell his plan, or probably even to convince fellow Republicans to support it.

What would it mean if Medicare was replaced by private insurance?  Would the elderly get a lump sum government subsidy, to take and to turn into a private insurance policy?  And what would the size of that subsidy be?  What would the private insurance cover?

And how would the premia be set?

Remember this:  The elderly have very high health care costs, on average.  If they are going to be put into their own class, the premium for that class will be high, and the subsidies needed to cover those premia will also be high.*

Would that be better than the current system, in any case?

The answer is a resounding no, because Medicare has lower administration costs than private insurance plans and because its centralized purchasing power means cost savings to tax payers.

Because those articles don't tell us about the subsidy the elderly would get from the government it's hard to know what else might happen.  For instance, the subsidy might be set too low to cover a good insurance package, and there wouldn't be that much the elderly could do about it.  In any case, I think the idea of the frailest elderly having to shop for an insurance plan that would accept them is macabre, because insurance plans have a strong incentive to keep the high-risk users out.


* If, on the other hand, the insurers are forced to offer them insurance with the same average premium as is used more generally, the premia will go up for everyone enrolled in that plan.