Romney, Ryan and Medicare

The selection of Cong. Paul Ryan as Romney’s running mate will again focus attention on Ryan’s proposal to privatize Medicare. Ryan (and now Romney) are rightly credited with bravery for talking about entitlements during an election year. However Ryan’s proposal still avoids the really hard question – how much should we spend to keep a Senior alive – by pretending the private sector can make the decision.

Healthcare costs have skyrocketed in the United States, going from about 12% of our economy in 1990 to almost 18%, about $2.6 trillion a year. Medicare spending has gone from $7 billion in 1970 to over $524 billion in 2010. The primary cause of the increase is medical technology. Every year doctors come up with new procedures to fix maladies we used to have to live with and new technologies to save people that once would have died. Keeping death at bay can be extremely expensive. By some estimates, Medicare now spends an average of $70 billion annually on costs related to the last six months of life.

While the concept may make us uncomfortable, cost needs to be a factor in end of life medical decisions. Currently it is not. Instead the decisions on when to take heroic measures to save a life and when to let nature take its course are left in the hands of family members who bear none of the cost and care providers that benefit from efforts to extend a Senior’s life. Obviously these are heart wrenching, very personal decisions that the children must make. However, the financial reality remains: it costs money to extend life, and at some point we aren’t even extending life, we are delaying death.

The failure to include costs in end of life decisions combined with the aging of the Baby Boomers are the primary reasons Medicare spending is projected to almost double over the next decade. And if does double it will come close to bankrupting our country. Ryan’s proposed answer is a radical transformation of Medicare. Currently Medicare is a single payer system, with Medicare directly responsible for paying doctors and hospitals. Ryan proposes moving to a single collector-multi payer system; the Federal Government collects Medicare taxes but passes on this money to private insurance companies that then pay the care providers. Ryan’s proposal would allow the government to move from a defined benefit, Medicare provides healthcare, to a defined contribution, Medicare pays $8,000 towards each Senior’s healthcare.

Under Ryan’s plan the decision on when to stop paying for care is transferred to the private sector; the death decision is privatized. Conservatives find this to be a very compelling theory – take government out of the death decision business and let the private market decide how to handle these challenging questions.

The complication, unfortunately, is that the private sector has done a far worse job than Medicare in addressing these questions. Despite decades of efforts to control costs, private sector healthcare costs have gone up 60% more than Medicare since 1970. If the free market has failed to control costs for the working age population is there any reason to think that it will be able to control costs for the retired population? Just adding a middle-man does nothing to rein in costs. And if costs keep going up is there any reason to think that the Federal Government won’t in turn increase it’s reimbursement?

Costs go up for the private sector for the same reason they go up for Medicare – technology and the inability to effectively make a death decision. Insurers have tried any range of approaches to cutting off care, but most of these efforts have been undone by government legislation. This, ultimately is the problem – no matter how we pretend to structure the decision, when to let somebody die or when to use taxpayer’s money to keep them alive is a societal decision.

And this is why the Ryan proposal, if implemented, will fail to control costs – it pretends that the hard question will go away if we just change the structure of Medicare. But until we have an honest conversation about how much we are willing to pay to extend the life of any one Senior we will not be able to rein in the cost of Medicare.

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