Fundmastery Blog

Kurt Brouwer June 19th, 2009

This sentence from Virginia Postrel really struck me as one of those irrefutably obvious points:

…If simple and decisive government action can curb costs in health care, as Obamacare advocates claim, why not begin by fixing Medicare before rushing in with sweeping changes to the entire system?…

We often hear how efficient Medicare is and how low its administrative costs are.  But then, we hear about the vast underfunding of Medicare to the tune of double-digit trillions of dollars.

And, even the proponents of government-run healthcare are admitting that Medicare could be much more efficient, by 30% or so.  So, the obvious question is: why not fix Medicare and then once that’s done turn to the issue of reforming healthcare insurance for the non-Medicare public?

This short post from the Washington Examiner makes the point that has also been raised by others, including Virginia Postrel (see below) and Megan McArdle:

As Congress and the White House began to discuss health care reform, author and journalist Virginia Postrel offered a modest suggestion: If simple and decisive government action can curb costs in health care, as Obamacare advocates claim, why not begin by fixing Medicare before rushing in with sweeping changes to the entire system? The government already runs half of America’s health care system. According to federal statistics, federal and state governments together spent virtually the same amounts on health care in 2007 as did all private insurers and patients combined — $1.036 trillion and $1.045 trillion, respectively. Medicare, which serves the elderly, is the largest public program, accounting for 19 percent of all health care spending in the U.S.

President Barack Obama’s Council of Economic Advisers issued a report earlier this month estimating that as much as 30 percent of Medicare spending is unnecessary for improving health outcomes. Given such opportunities for easy savings within government, and Medicare’s weighty influence in the broader system (many private insurers set payments by adding a percentage to Medicare’s rates), it would make sense to reform Medicare first, see what works and what doesn’t, and then apply the lessons of that process later to any system-wide fix. Unfortunately, Obama and Democratic congressional leaders are hellbent on turning the system upside down with radical reforms that are sure to have vast and unexpected consequences…

It seems eminently sensible to me that we would reform Medicare first before subjecting everyone in the country to a wrenching change in how we insure our healthcare costs.  This comment by John Thacker (see final comment here) was picked up and quoted by Megan McArdle at the link above.  Thacker’s points seems both perfectly obvious and perfectly clear:

I completely fail to grasp this magical argument whereby Medicare is unreformable now, but adding even more patients to the rolls will create the incentive for exactly the sort of cost-cutting reforms that people hated when the HMOs were doing them in the early ’90s, and got laws passed to prevent.

Here a longer version of the comment from Virginia Postrel that started this whole train of thought [emphasis added]:

…Think about this for a moment. Medicare is a huge, single-payer, government-run program. It ought to provide the perfect environment for experimentation. If more-efficient government management can slash health-care costs by addressing all these problems, why not start with Medicare? Let’s see what “better management” looks like applied to Medicare before we roll it out to the rest of the country.

This is not a completely cynical suggestion. Medicare is, for instance, a logical place to start to design better electronic records systems and the incentives to use them. But you do have to wonder why a report that claims that Medicare is wasting 30 percent of its spending thinks it’s making a case for making the rest of the health care system more like Medicare…

If there really are huge (as in 30%, as President Obama claimed) savings available in Medicare, then let’s fix that program right now.  That will have the virtue of saving money immediately, if it works.  If it does not work, then we that would be valuable information too.

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