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Kay’s Blog: Six Reasons the Voucher System will not work as well as Traditional Medicare

Six Reasons the Voucher System will not work as well as Traditional Medicare

Can you take the time to read a 2&1/2 page summary of facts that will arm you in discussions about Medicare’s future? Below is a very good piece from John Cassidy, in the New Yorker of 8/17/2012, of opinions of an expert in health issues, Henry Aaron.

Aaron participated in a seminar held at the Brookings Institute with two other experts in the field: Judy Feder and Paul Van de Water. Judy Feder is a Professor of Public Policy at Georgetown University. She served as Dean of the Public Policy Institute from 1999 to 2008. Paul Van de Water is a Fellow at the Center for Budget and Policy Priorities.

Henry Aaron is a Senior Fellow of Economic Studies at the Brookings Institute. He is the man who coined the term of “Premium Support”, essentially a euphemism for Voucher Plans. He originally was a supporter of this approach to cutting costs for Medicare but clearly has reached a substantive change of opinion about the idea. He cited the “….words attributed to John Maynard Keynes,” Aaron wrote. “When the facts change, I change my mind. What do you do, sir?” Because Henry Aaron had once been identified as “one of the bi-partisan supporters” of the Ryan Budget he is particularly concerned with making the public understand why he feels so strongly that the Voucher System, as outlined in Paul Ryan’s Budget Plan won’t work.

Below is Cassidy’s summary of part of Aaron’s paper presented at the seminar. I find it a great source of information for combating some of the claims from Voucher Plan’s supporters.

1. Traditional Medicare works better, and more cheaply, than most private-insurance plans. With tens of millions of enrollees, Medicare can exploit its bargaining power to pay health-care providers less than private insurers do: that is the great advantage of a single-payer system. Typically, doctors and hospitals receive twenty or thirty per cent less from Medicare for a given procedure than they do from private insurers. They don’t like it, but they need the business.

2. Medicare’s big challenge is demographics, not cost inflation. We’ve all seen the projections: if nothing is done to constrain it, spending on retiree health care will virtually swallow the federal budget. But what’s driving that spending is the growing number of enrollees—another million and a half Baby Boomers every year—rather than rising spending per person. “[W] hen it comes to what health-care costs per person, Medicare’s growth rate is remarkably low,” Feder pointed out—about three per cent a year over the next decade, according to the latest projections, which is considerably less than the cost inflation in the private-insurance sector.

3. In the health-care industry, competition hasn’t produced the savings that economists expected, and it has led to other problems, such as gaps in coverage. Remember the rise of H.M.O.s, another idea promoted by Enthoven that was supposed to revolutionize health care and drive down costs? Part of the problem is the advance of costly treatments. But a bigger problem is that private insurers, rather than haggling with doctors and hospitals, try to make money by limiting the procedures they cover and by aggressively managing their risk pools—that is, taking on fewer sick people. This problem can be addressed through vigorous oversight, but that’s not an easy thing to implement, especially when half of Congress is controlled by a party that breaks out in hives at the very idea of government regulation.

4. Significant measures have already been taken to reduce the future growth of Medicare spending. Under the Affordable Care Act of 2010—“Obamacare”—the formula that governs payments to health-care providers was altered to reduce outlays significantly—about five hundred billion dollars over ten years. Assuming that these measures go into effect, their impact will be very noticeable. Citing numbers from the Congressional Budget Office, Feder wrote “Medicare premiums, currently estimated to be 11 percent lower than private insurance premiums for the same benefit package, will be about 30 percent lower by the end of the next decade.” (This change in the growth in outlays accounts for much of what Romney has been referring to as money taken away from seniors.)

5. Retirees can already make choices about what sort of health-care coverage they want. Although Medicare is often regarded as a monolithic system, it has actually changed quite a bit. Aaron noted: “The sort of competitive system that voucher advocates say they want to create already exists. The average Medicare enrollee today may choose among an average of 24 plans, in addition to traditional Medicare, including 10 health maintenance organizations.”

6. For many elderly patients, choice isn’t necessarily a good thing. Back to Aaron: “The Medicare population contains many people with mental disabilities and early or advanced mental decline. The recently announced Wyden-Ryan plan promises to provide voucher recipients with ‘clear and easy to understand information’ on various plans. Has any of you actually read the clear and easy to understand (!) information that Medicare and private insurers now distribute to enrollees? To think that providing ‘clear and easy to understand information’ equips those with mental disabilities or early-state dementia to deal with competing insurers is delusional.”

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