The Health Cost Narrative is Incomplete
By Arnold Kling
Stare at the following table, which gives population projections for the elderly in the United States, in millions.
Over the next twenty years, we are going to double the number of people aged 65-74, who get their health care paid for by Medicare. And we are going to nearly double the number of people aged 75 and up, where medical expenses get really high. The Medical Expenditure Panel Survey, for which the most recent data available are from 2007, shows average spending in the 75+ age group of $10,500 per person.
If you double the number of beneficiaries, you have to cut the amount of money that you spend on each beneficiary. Now the Republicans are wrong to attack cuts in Medicare benefits. But the Democrats are even more wrong to suggest that cuts in Medicare benefits can be used to fund new subsidies. Cuts in benefits are needed to enable Medicare to survive a doubling of the population of beneficiaries.
Moreover, the cuts in Medicare benefits need to be very large. To a first approximation, if you hold the budget constant and double the number of beneficiaries, then you need to cut benefits by 50 percent. The cuts in benefits need to be genuine, not phony. The health care bill contemplates cutting reimbursement rates to doctors and other health care providers. That mechanism has a track record of being phony, with Congress voting to override such cuts.
The most important facts in health care policy are not the number of uninsured, the international comparisons of health care, or the measures of “excess cost growth.” The most important facts are the numbers in the table above.
Stare at the table.