I wrote previously about the myth of Social Security insolvency. Conservative politicians — pretending to be fiscal realists who understand we must make difficult decisions to cut aid to the elderly — have been trying for decades to get rid of the program on trumped on charges that it cannot be sustained. Although the conservative claims that there are dire problems with Social Security are clearly false, the claims about problems with Medicare and Medicaid are more accurate.
According to CBO projections, under current federal law, Medicare and Medicaid spending will rise from 4 percent of GDP in 2007 to 19 percent in 2082. This is undeniably a problem. However, it is not a problem created by government largess and inefficiency; rather, it is a problem with health care costs in general. In the same projection, CBO estimates that total private and public spending on health care will rise from 16 percent of GDP in 2007 to 49 percent in 2082.
The basic problem is that health care costs are increasing at a rate higher than the growth of GDP. Between the years 1975 and 2005, health care costs increased at an annual rate that was 2.1 percent higher than the rate of GDP growth. This sort of growth will very quickly get out of control. When it comes to Medicare and Medicaid spending then, conservative concerns about future insolvency are actually serious. Unsurprisingly, their proposed policy remedies to the pending crisis have been universally bad.
The most prominent suggestion so far has been from Paul Ryan who has proposed to create a voucher-like system for Medicare. Under Ryan’s plan, a voucher would be given out to seniors that they could use to buy private insurance in an exchange. Under this plan, the amount of the voucher would only increase by the amount of inflation. However, health care costs have risen and are projected to rise at a rate much higher than inflation. In the 30 years from 1975 to 2005, the costs increased at a rate more than double the Federal Reserve’s 2 percent inflation target. By pegging the increase in the voucher to inflation instead of health care inflation, Ryan does not decrease costs; he just shifts the costs to the elderly. The CBO’s analysis of his plan (pdf) predicts that by 2030, the voucher would only cover 32 percent of the average Medicare recipient’s health care expenses.
In addition to Ryan’s plan, conservatives have thrown out the idea of increasing the Medicare eligibility age and means-testing the program. As Paul Krugman points out, neither of these proposals makes good sense. They increase the complexity of the programs while only achieving very modest savings. Additionally, like Ryan’s plan, both approaches do nothing to reduce overall costs; they only shift the costs to individuals. In the case of raising the qualifying age, the costs will be disproportionately shifted to poor people and people of color as those populations have shorter life expectancies.
Getting serious about Medicare solvency requires that we get serious about reducing health care costs in general. In his new book, Dean Baker offers two rarely discussed ways to reduce health care costs quickly. The first is the elimination of drug patents. Although they are taken for granted as necessarily existing, drug patents — and patents in general — should be understood as artificial, government-issued monopolies over the production of a certain drug. This government-issued monopoly allows pharmaceutical companies to charge exorbitant prices for prescription drugs which drives up costs for individual consumers and government programs like Medicare.
By constructing a non-competitive marketplace for life and death products like drugs, government policy undermines its own interests in reducing health care costs. Baker claims that consumers and the government pay around $270 billion more per year for prescription drugs than they would without drug patents. Patents are usually held up as necessary to incentivize drug research, but as Baker points out, the government already spends $30 billion a year through the National Institute of Health on medical research. Increasing that by another $30-$80 billion could completely replace the drug research being done in the private sector, an increase which would be more than offset by the massive savings on patent-free prescription drugs.
In addition to eliminating drug patents, Baker also suggests in a previous book that we use the tactics of free trade already used against low-wage earners to depress the wages of doctors. As it stands, doctors in the United States benefit from exorbitant salary levels that result from proctectivist licensing restrictions manufactured by the American Medical Association. They also benefit from policies which make it difficult for professionals to immigrate to the United States and practice, professionals who would likely demand less for their services. Doctors in the United States presently make about twice as much as doctors in other wealthy countries do. Intentional policies to increase competition among doctors in the United States would likely put downward pressure on the salaries of doctors which would ultimately decrease health care costs.
The last big way to decrease health care costs, although not a suggestion mentioned by Baker, is to implement a single payer health care system. Single payer systems across the world have much lower administrative expenses than private insurers which decreases the cost of health insurance to consumers.
These three proposals are just a few ways to get started cutting costs, a policy approach which will both reduce government expenditures and overall health care spending in the economy. Medicare and Medicaid are not the problem and never have been; spiraling health care costs are and will continue to be. Any approach which is not focused on bringing those costs down or checking their growth should be immediately dismissed as non-serious. That conservatives have endorsed none of these approaches and continue to pursue merely cost-shifting — an approach which is still unsustainable as the CBO projection demonstrates — reveals their self-proclaimed fiscal realism as the posturing that it really is.