Suppressed Laughter: Muddling the Medicare Issue

There are those who find the Democratic charge that the Republicans would end Medicare as we now know it risible, but there are some very practical reasons for stifling the guffaw.

Let’s start with the proposition that the current Medicare program is a very popular single-payer system for providing health insurance coverage to individuals in the United States who are over 65 years of age.   Let’s also accept that a single payer system like Medicare has helped reduce the financial strain on our elderly.  [CMS pdf]

Additionally we can find historical data indicating that those elderly citizens who have annual incomes of $40,000 or less spend a higher percentage of their income on health care than those more affluent: [CMS pdf]

We also know that the elderly have moved from a demographic group less likely to have health insurance coverage to the one in 2000 most likely to be covered:

“Prior to Medicare’s enactment, about half of America s seniors did not have hospital insurance. By contrast, 75 percent of adults under 65 had such coverage, primarily through their employer. For the uninsured, needing hospital services could mean going without health care or turning to family, friends and charity to cover medical bills. More than one in four elderly were estimated to have gone without medical care due to cost concerns (Harris, 1966). Today, Medicare covers nearly all of the elderly (approximately 97 percent), making them the population group most likely to have health insurance coverage.”  [CMS pdf]

At this point it ought to be reasonable clear that if (1) we want elderly Americans to have affordable health care insurance, and (2)  especially want those at the lower end of the income scale to secure affordable health care insurance, then by those standards the current program is successful.

If It Ain’t Broke Why Fix It?

Across the philosophical divide:   One important facet of current conservative thinking holds that any government program which offers services to individuals  in the form of a social safety net “creates dependency.”   The proponents of this argument rely on philosophic arguments almost as arcane as the extensions of Anselm of Canterbury’s Scholasticism before Abelard arrived to rescue the scholars.

Theoreticians are invited to weigh in on discussions bounded by such definitional perimeters as the following from the libertarian Cato Institute:

“The central idea behind the theory is that government officeholders, as individuals, have strong incentives to alter important political transaction costs facing the public and facing others in government in order to secure more of what they want with less resistance. As economists use the term, transaction costs are costs to individuals of negotiating and enforcing market exchange agreements, including information costs, negotiation costs, enforcement costs, and the like.”

One is pretty much left to imagine what “and the like” might mean.  However, the message is clear – government office holders have an incentive to promote their programs and to minimize the resistance to those projects.  This assumes that people are naturally resistant to efforts by their own government to assist them, and that all government services must be resisted.  In other words, in order for this argument to work in general terms we’d have to assume that everyone is naturally a radical libertarian.

We’d also have to assume that the populace doesn’t want the government to “alter important transaction costs” on its behalf.   This is a hard point to sustain given that most citizens don’t appear to be enthusiastic supporters of personally negotiating defense contracts — which if we were to extrapolate the localism of the initial argument to its illogical extreme would be required to reduce “Constitutional level political transaction costs.”

Culturing Dependency:   The current arguments from the radical Right, framed philosophically as described above, march to the next milepost — that citizens are naturally “free” (individualistic) and any government programs which provide services to the elderly (or indeed anyone else) create a dependency on government action at the expense of individual “freedom.”

All we have to do to subscribe to this position is to completely ignore the preface to Robert’s Rules of Order:   “Where there is no law, but every man does what is right in his own eyes, there is the least of real Liberty.” (Henry M. Robert)

There are also some uncomfortable questions raised by this proposition.  Does hiring a local police force create a dependency on my part for the protection of my life and property?  Does having a local fire department make me dependent on government for fire suppression, rescue, and EMT services?  Does having a Department of State make me dependent upon government for the implementation of foreign policy?   Does having a Department of Commerce make me dependent upon government for statistical reports on my economic environment?

Splitting Differences:  If the answers to the questions above are equivocal, then it’s probably because there are some definitions of “legitimate” and “illegitimate” government services involved.  If a person defines government as only responsible (legitimate) for national defense and foreign policy, then only government programs in those realms are legitimate.  If, however, we see government as formulated for We The People, life gets a bit more complicated:

 “…of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.”

Now we add “establish Justice, insure domestic Tranquility, … promote the general Welfare…” to the list of legitimate concerns of our government.  It’s time to come back around to the main argument.  If Medicare is a popular single payer system for promoting the availability of health insurance coverage to elderly individuals, and if it is successful in that regard, then why argue that it’s illegitimate?

The Magic Market:  The “market” in whatever form it may take is supposed to be the ultimate form of human transaction — the most efficient, the most efficacious, the most Free.  Except when it isn’t.   We’ve had an unpleasant taste of what happens in unregulated, or poorly regulated, financial markets.  Unfortunately, the after-taste is still lingering.  We are now told by the radical Right that an unregulated health insurance market will meet the needs of elderly Americans for their health insurance coverage.  Probably not.

The first point to acknowledge is that the Romney/Ryan plan for Medicare essentially changes the Medicare program from a single payer system to a voucher plan which “incentivizes health insurance corporations to provide coverage for elderly people.”    This is not “Medicare as we know it,” it is Medicare as the Insurance Corporations would like to have it.

The insurance corporation argument is underpinned by the notion that medical care is a commodity which can be purchased by a consumer from a provider, and this is true up to a point, but it’s a point that is very quickly reached.   The problem, as Professor Krugman points out, is that medical care isn’t bought and sold like a loaf of bread.   A person making up a list of groceries may include bread, but if the price of a loaf is too high then it’s logical to skip the purchase or substitute another commodity.  The market works.  However, if a quintuple  by-pass is needed then price is not the determinant of the “purchase.”  The result of “gee, I don’t think I can afford that right now” is poor health or even death.  The Magic Market doesn’t work in this instance.

The second problem with the Magic Market solution is that no one is shopping in the ambulance.   The victim of a motor vehicle accident or a heart attack, even if fully conscious, isn’t saying “Get me to the cheapest Emergency Room,” he’s saying, “Get me to the nearest Emergency Room.”

The third problem with the Magic Market solution is that the health insurance corporations themselves aren’t subject to it.  Under the terms of the McCarran-Ferguson Act of 1945 health insurance corporations are exempt from anti-trust laws.  This is both good and bad news; the bad news is  they may collude to limit access to their products or divvy up regions as sales territories.   The good news is that they are able to share information which might serve in some cases to reduce premium costs.  [KaiserNews]  Either way, the policy purchaser is dealing with a provider which is not subject to the same “free market” forces as the consumer.

The fourth problem inherent in the current privatization of the Medicare program is that it hasn’t worked.  Medicare Advantage was supposed to be the insurance industry version of the original Medicare program, and IF the free market worked the way the ideologues on the Right predicted, then we’d expect massive consumer shifts to the privatized version.  Hasn’t happened.  Altogether too many Medicare Advantage policy holders are there because their employers, many in the public sector, have been pressured into adopting Medicare Advantage plans.  [HealthBeat]*   If the Free Market worked as predicted, then the pressure would not be necessary.

Finally, the “free market” Medicare Advantage plans can hardly be called “private” when the companies offering them are getting an $8.9 billion subsidy from the Medicare program.  [TP]  Further, if the private market-driven plans can produce lower health care costs, then why haven’t they? [Incidental Economist]

Stop Laughing

If the current Republican calls to eventually replace the original Medicare program with a “market-driven” plan are (1) philosophically dubious, (2) politically questionable, (3) grounded in doubtful Constitutional theory, (4)  and premised upon illogical and indemonstrable market behavior; then why would challenging the practicality of such a plan be laughable?

Arguing that Medicare will still be existent even if privatized into a program run by insurance corporations is roughly analogous to contending that an orange is still an orange after it has been reduced to juice and pulp.   The result may be many things — but it’s not an orange.   Nor, would our original Medicare program be the same Medicare which now serves half of our elderly citizens who live on $21,000 per year or less.  [AARP]  Still suppressing that guffaw?

References: “Medicare – A Profile, 35 years of Medicare,” HCFA, July 2000. (pdf)  Charlotte Twight, “Medicare’s Origin,” Cato Journal, Volume 16, No. 3.   Kenneth J. Arrow, “Uncertainty and the Welfare Economics of Medical Care, American Economic Review, December 1963 (pdf).  Paul Krugman, “Why Markets can’t cure healthcare,” New York Times, July 25, 2009.  *Desert Beacon, “Medicare Disadvantage,” August 22, 2012.  AARP Fact Sheet: Who Relies on Medicare – Profile of the Medicare Population (pdf).

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