Another nugget from Jonathan Lipow’s book Public Policy for Progressives.
I’ve posted three times now on Lipow’s book (here, here, and here). One thing I like a lot about Jonathan is that although he’s a progressive, he’s also an economist. And he doesn’t leave his economics at the policy door.
Here’s an interesting insight about Medicare for All as a solution to health care spending.
He writes:
One hint that Medicare is part of the problem and not the solution is that no American below the age of 65 is on Medicare, and the US spends only moderately more per person on healthcare for these people than other OECD countries. Meanwhile, all Americans above the age of 65 are on Medicare, [DRH note: not quite true. My wife and I are on Medicare Part A but not on the rest of Medicare. As a federal retiree, I retained my employer-provided health insurance] and America’s healthcare spending per person for this group far exceeds that [of] other OECD countries. Formally, that doesn’t prove anything, but where there is smoke there just might be a fire–and Medicare is shrouded by a huge plume of dense smoke.
Later he points out:
The first change that the “Medicare for All” proposal would make to traditional Medicare is to eliminate all co-pays, deductibles, and premiums. That would convert Medicare into a program very similar to the extravagant “all expenses paid” FFS [fee for service] insurance policy studied in the RAND experiment. Recall that the experiment found that “free FFS” insurance ran up bills by 30%, while achieving only negligible benefits in terms of health. Would something similar happen if we adopted “Medicare for All?”
READER COMMENTS
Steve
Sep 16 2024 at 8:28am
Your side comment raises a question. If Medicare is so great, why do federal retirees want to keep their insurance plans?
David Henderson
Sep 16 2024 at 10:01am
I don’t think it is great.
Dylan
Sep 16 2024 at 9:25am
Do you know if this is the US government spending or if it includes all spending on under 65s?
David Henderson
Sep 16 2024 at 10:02am
I’m pretty sure the latter. I don’t think Jonathan would make that simple mistake.
Dylan
Sep 16 2024 at 11:17am
That’s what I would have thought, but I guess that depends on how you determine moderately more. This chart suggests we’re pretty close to the average from about age 4-20, but then we start diverging and (eyeballing this) looks like by age 35 we’re about double the OECD average. There is a sharp increase at age 65 and the gap continues to widen until about age 80, when other countries start to catch up to our spending.
Thomas L Hutcheson
Sep 16 2024 at 10:12am
I wish all the energy going into pointing out the error of Medicare, Medicaid, ACA had gone into shifting the subsides for these AND employer purchased plans (for example the Federal government plans) into tax credits for people to buy their own health insurance (including companies that cover procedures performed abroad.
Mark Z
Sep 16 2024 at 3:55pm
Why not rephrase your comment “I wish all the energy going into advocating for expansion of Medicare, Medicaid, ACA… had gone into…”
Kind of odd to place the responsibility for policy mistakes primarily on their critics for supposedly not being specific enough rather than on those who… made the mistakes in the first place?
steve
Sep 16 2024 at 11:10am
https://www.kff.org/medicare/issue-brief/how-much-more-than-medicare-do-private-insurers-pay-a-review-of-the-literature/
“Private insurers paid nearly double Medicare rates for all hospital services (199% of Medicare rates, on average), ranging from 141% to 259% of Medicare rates across the reviewed studies.
The difference between private and Medicare rates was greater for outpatient than inpatient hospital services, which averaged 264% and 189% of Medicare rates overall, respectively.
For physician services, private insurance paid 143% of Medicare rates, on average, ranging from 118% to 179% of Medicare rates across studies.
Across all studies, payments from private insurers are much higher than Medicare payments for both hospital and physician services, although the magnitude of the difference varies”
This is very well known by people who regularly write about health care. If Medicare was paying the same rates as paid by private insurers our health care spending would much higher. When you look at what Medicare pays for the same procedure vs what the average OECD country pays its about the same. What’s different is that utilization of more expensive surgeries and therapies are more common. Also, Medicare has not been allowed to negotiate prices for Medicare drugs, unlike the rest of the world.
As an aside, I believe you are among the libertarian economists who believe we, Medicare, should just pay drug companies whatever they want or they will stop innovating. To then complain that Medicare spending is too high, seems odd or inconsistent or something.
Steve
David Henderson
Sep 16 2024 at 11:43am
You write:
Your belief is incorrect.
steve
Sep 16 2024 at 7:24pm
Deepest apologies then and thank goodness there is at least one libertarian economist who doesnt believe we are obligated to pay pharma whatever they want. (I must have been thinking of Alex and Tyler at MR)
Steve
robc
Sep 17 2024 at 5:31pm
I may or may not be misrepresenting David, but I am sure you are misrepresenting the rest of libertarian economists…I think the majority position among them would be for Medicare to pay no one anything.
At least I hope so.
David Henderson
Sep 17 2024 at 7:24pm
Good point, robc.
Yes, I think that Medicare should pay zero for anything.
I sometimes have a bad habit of not laying out the ideal and, instead, working within real or imagined political constraints. Given that Medicare will be paying for drugs, I think it should negotiate for them.
Kevin Corcoran
Sep 18 2024 at 3:44pm
Very true. Let me also say as a libertarian economist that I also fully reject the idea that anyone is “obligated to pay pharma whatever they want” – or indeed, the idea that you’re obligated to pay anyone “whatever they want.” Libertarian economists are really big fans of this whole “voluntary exchange” thing, and the idea that you can somehow be obligated to pay someone else whatever they want is utterly antithetical to the idea of voluntary exchange. I’m sure pretty much every store or company I patronize “wants” me to pay them more than I currently do – yet, mysteriously, I see myself as under no “obligation” to “pay them whatever they want” regardless.
MarkW
Sep 16 2024 at 2:00pm
I believe people under 65 who are on SSDI are also on Medicare.
Scott Sumner
Sep 16 2024 at 3:02pm
I checked and it seems that Medicare spends 3.1% of GDP. Total US spending on healthcare is 17.3% of GDP. So is the big problem non-Medicare spending among the over 65? I’m confused.
(BTW, I suspect programs like Medicare and Medicaid are very wasteful, I’m not arguing that point.)
steve
Sep 16 2024 at 7:33pm
You can see the distribution of spending at this link, done as a percentage of total health care spending. Private health spending is higher than Medicare which is higher than Medicaid but the latter two are not that far apart. A rough way to remember is that Medicare and Medicaid are both about 20%, Private about 30%, out of pocket about 10% and everything else about 20% (VA, military, public health, etc.)
Steve
Scott Sumner
Sep 16 2024 at 10:56pm
Thanks.
steve
Sep 17 2024 at 11:01am
https://www.cms.gov/data-research/statistics-trends-and-reports/national-health-expenditure-data/nhe-fact-sheet#:~:text=Historical%20NHE%2C%202022%3A&text=Medicare%20spending%20grew%205.9%25%20to,29%20percent%20of%20total%20NHE.
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