Tuesday, October 11, 2011

Free market health care is the answer? Then show me.

Critics of the Affordable Care Act argue that it involves too much government, and have vowed to repeal and replace it. For the most part, though, they haven’t gotten much past the part about repeal of “ObamaCare”—the replacement piece usually involves some vague promises to use market-based reforms, not an actual plan that could be contrasted against the ACA. As the country heads into a presidential election year, it will be important for conservative critics of the ACA to more clearly explain how market-based reforms would actually do a better job than the ACA in expanding access to care, controlling costs and improving outcomes. Then let the voters decide.

I understand the philosophical argument for market –based reforms: that given the ability to make free choices among competing health plans, providers, and treatments, patients will make wise and prudent choices, better choices than the government would make on their behalf. That if patients have to pay more out-of-pocket instead of being insulated from the cost of care by low or no deductible plans, they will have an incentive to use care more judiciously. That removing price controls—and allowing patients and their physicians to contract freely for services rendered—will introduce price competition and sensitivity, lowering overall costs. That without price controls, there will be more physicians to take care of patients, because physicians will be able to charge what the market will bear and stay in business, while discounting charges for patients who can’t afford to pay the full freight and charging more to those who can.

I actually agree with much of this line of reasoning. I think patients should have more choices—of physicians, hospitals, and insurance companies. Price controls do distort markets and create shortages. Patients should have more skin in the game.

But . . . and it is a big but . . . I haven’t seen any evidence that such market-based reforms can solve the two biggest challenges facing our health care system: out-of-control costs and almost 50 million Americans without health insurance, without the government being involved to subsidize care to those who can’t afford it and using its purchasing power to drive down spending. In other words, I’d like to see a conservative plan that shows me how and where market-based reforms would work—absent a major role for government:

Show me: Is there any country in the industrialized world where market-based reforms have ensured access to care for all of their residents, without a major role for government? When I co-authored a paper for ACP comparing U.S. health care with 12 other industrialized countries, we didn’t find a single one that had a system that relied on markets without substantial government subsidies and regulation.

Show me: Is there a state within the United States that has a developed a viable plan to ensure access to all of their legal residents, without a major role for government in subsidizing coverage? If states can do it better, then why is it that states that are most hostile to government tend to lead the pack in the percentage of their residents without health insurance? Massachusetts is the one state that has near-universal access to health coverage, and as we all know, it does it by government regulating insurance underwriting practices, spreading risk, subsidizing coverage for people who can’t afford it, and requiring people to buy it.

Show me: how eliminating price controls, moving to high deductible health plans, and offering more choices of insurance companies will by themselves reduce health care spending? For price competition in health care to work, several elements would have to be present. Patients (let’s call them “consumers” for this exercise) would need information to compare the quality and cost of the “providers” and health plans offered to them, just like they do when buying a car or washing machine. Yet we patients know almost nothing about the qualifications of the physicians and hospitals we supposedly can choose from, other than some basic information like whether a physician is board-certified or where he or she went to school. Many of the physicians who argue for free market reforms resist mandates that they “report” to the public on the quality and efficiency of their care.

We patients would also have to know in advance what physicians or hospitals charge for services so we could shop around, but there is no equivalent to Expedia for comparing physicians’ and hospitals’ charges. And even if I as a patient know what a doctor charges for a “typical” office visit or procedure, this tells me almost nothing about the actual cost of my care, because I may not be typical, and my cost of care has as much to do with how many procedures and visits I will need, what specialists I will be referred to (and what they charge), diagnostic tests I will need (and what they will cost me) and hospital trips I’ll have to make. Except maybe for a few elective procedures, much of this will remain unknowable and unpredictable, making true price completion unworkable.

Even the idea that we have a choice is a bit of an illusion. We don’t get any choice when it is an emergency room doctor, or when an anesthesiologist is assigned to us for surgery. And in many markets, there may be only one or two insurance companies to choose from. And even if we had more insurance companies to choose from, how do we patients know which ones offer better service and benefits at a price we can afford?

Finally, the argument that price competition and high deductible plans will substantially lower health care spending overlooks that fact that most health care spending is concentrated in a small percentage of the population, with half of the population spending little or nothing on health care, while 5 percent of the population spends almost half of the total amount. The high spenders tend to be older, sicker, and with multiple chronic diseases—the kind of people who would quickly use up a high deductible HSA account. The same study shows that they already have high out-of-pocket expenses relative to Income (so much for the argument that requiring them to pay even more out-of-pocket will lower spending). Much of health care spending occurs in the last six months of life, a time when seriously ill (dying) people aren’t likely to be shopping around for the least expensive doctor or hospital.

This isn’t to say that markets aren’t important, but markets work best when people have a real choice and the information to go with it to make informed decisions, and when government regulates things that markets don’t do well on their own, like providing public subsidies to people who can’t afford to buy health insurance on their own, requiring insurance companies to compete based on quality instead of cherry-picking the healthiest enrollees, mandating public reporting of quality and outcomes data, and providing patients and their physicians with information on the comparative effectiveness of different treatments. Oh but that is precisely what the Affordable Care Act tries to do, and conservatives say that is too much government and not enough markets. Fine, but I have to then ask: show me how free market health care would work in ensuring access and driving down costs (supported by evidence, not vague statements of philosophy) in the absence of government regulation and subsidies.

Today’s question: Is there any example or evidence, within the U.S. or abroad, that shows that free market health care can work in driving down expenses and ensuring access without government regulation and subsidies?


ryanjo said...

The best argument for getting government out of healthcare is your second paragraph. But don't look for examples in other countries. There aren't any. Governments in other countries are even more intrusive into their citizens lives, and even better at generating data to inflate the results.

Walk into your local grocery store. There's a free market success story -- with government oversight limited to product safety. Do you need to know how to choose a good can of soup? Would you trust Uncle Sam to choose for you? In fact, most components of the American economy (that have remained free of excessive government intrusion) have superior efficiency, productivity and quality than managed nationalized economies elsewhere.

You should really get out more. Washington has a way of warping common sense.

You should really get out more.

BDoherty said...

I appreciate RyanJo's suggestion that I get out of Washington more, but that would be hard to do, because I already spend most of my time meeting with internists around the country. Since Labor Day, I have attended the following ACP chapter meetings: Wyoming, South Dakota, Alaska, Nebraska, Florida, Missouri, Arizona, and Kentucky, and I will be traveling this weekend to the Tennessee chapter, and then a week from now, to the Indiana and Northern California chapters. And early next year, I will be going to the Nevada, South Dakota, and Southern California chapters. I don't think there is anyone within the ACP leadership and staff who meets with more internists in their own states. I do this because I believe that I can't be an advocate for internists without getting out of Washington, and meeting with them, face-to-face, in their own states.

I would also say with the greatest respect that buying a can of soup is a whole lot different than choosing a physician. Assuming the can of soup has met government inspection standards, my choice is unlikely to be a matter of life and death. My grocer doesn't ask about the deepest and most personal aspects of my and my family's life. My grocer doesn't selectively decide whether I can afford to pay the full retail price for the soup or get a discount. And I can comparison shop among grocery stores because their prices are readily available--not so with physicians and hospitals. And when I go into the grocery store, I can pretty much decide for myself what I need and can afford to buy within my budget. When I go to a physician or hospital, I have no way of knowing in advance what care I will need and what it will cost me. It would be like walking into the grocery store, and the grocer decides what I need and orders it all for me, but I won't know afterwards what it will all cost me until the bill comes later.

The genius of the American economy has always been that we worship free enterprise and markets, but we always have balanced that with regulation of things that markets don't do well and provide help (public subsidies and safety net programs) to those who can't buy into the market on their own. That is why we have everything from child labor laws to environmental protections to food safety to regulation of securities and banks. Especially with health care, which is very different than buying a can of soup, the public needs to have access to and more choices of physicians, hospitals, and insurance companies, and more information to make informed choices, but we also need to have the government provide help to those who cannot afford to buy into the private health insurance market, and appropriate regulation to ensure that patients' rights are protected. The question in my mind is how much government is needed, not whether the government needs to be involved.

And again, I challenge anyone to show me evidence, within the U.S. or abroad, that it is possible to ensure access to care and reduce health care costs without the government being involved in subsidizing care for those who can't afford it and regulating those things that markets don't do well on their own.

Harrison said...

I believe you are setting the bar too high by asking for demonstrated evidence of success.
You know as well as anyone that such evidence does not exist.
I think though that you could set the bar even lower and still not find anyone who could clear it.
A lower bar would be simply to describe what a free market health care system which provides access to care for everyone at affordable prices would look like?
Who would provide care? How much should the goods and services cost to define them as affordable? What is product safety in such a market, and how is it maintained? Is the regulation that would be part of product safety an accepted cost of doing business? Would this set up large corporations who could then keep the costs of operations lower and then would the physicians who would become employees of these large corporations have to seek protection from the government as they tried to unionize -- over the objection of their corporate 'partners'.

You can set the bar lower.
It still can't be cleared.
We are spoiled by government involvement in health care.
Patients have come to expect more tests and more technology. Doctors have come to expect access to public sources of funding to pay for services.
So have hospitals -- and they've done it a damn sight better than we have.

If we had never allowed third party payment schemes in health care then we would have had a higher value for primary care, and very few specialists. And we would have much less technology because the money wouldn't exist to develop them. No companies would have funneled investment dollars into medical research because there would not have been enough patients able to pay and so there would not be any anticipated pay off for the investments.

But with third party payers this was accelerated, and then with the government stepping in to guarantee access to the elderly and to many people with inadequate income, the research dollars could flow because the pay offs were nearly a guarantee.

We can't go back.
We have to work with what we have and make sense of it.
The ACA did that.
It was far from perfect, but it was a good mix of politically expedient expectations and idealism aimed at giving access to as many as possible.
And it passed. Legally.

I think it will gain public support as provisions of it are enacted.

Mr. Romney for now has to say he will repeal it.
He won't.
And the state wavers he talks about, well they already exist.

It is our political discourse and our political system that is currently dysfunctional.
The ACA, as a product of that political system, is remarkably positive.


Robert J. Sobel, M.D. said...

Again the either-or is not the issue. The market complexity and its games, and the for-profit, investment driven entities drive consolidation and hurt independent, primary care practice. The documentation edicts will not make me a better doctor and will use more resources. Reining in the market excesses has yet to be achieved by the ACA. Making me a part of an ACO does not change that dynamic; it just shifts risk.

Price regulation exists for me and has not kept up with my costs. The cost in time to the dys-regulated pharmaceutical industry needs reform. I'll accept a lot of extra stuff if I could be shielded from the fall out of the Hatch-Waxman Act. The artificial brand-generic market is costing us billions while we are hassling patients on co-pays for insulin and test-strips.

A graded subsidy for things is fine. We need a regulated market where a few insurance companies can do their best, but they are not allowed to be "creative destructors."

Look at drug regulation in other countries. Look at the shortage issue, the counterfeit issue, the Colcrys issue, ad nauseaum. I am all for regulation: Regulated Royalties.

W. Bond said...


You are to be commended on a very balanced post and fair question.

The best examples available are regarding goods and services other than medical, but some of which are even more basic, simple, and necessary for a flourishing life.

The can of soup, for instance: We have abundant historical examples where basic food staples were poorly delivered, if at all, due to price controls, central-planning, etc. To take perhaps the most extreme example, the history of the Soviet regime and agricultural/food production is illustrative here. They also had a notorious difficulty in producing shoes, etc.

So, isn’t it fair to turn the question around and ask: If it is difficult if not impossible to put flour in the stores consistently and efficiently, or manufacture wearable shoes (that are worth more than the raw materials), how in a country of 300 million+ can we expect to centrally-plan a health care delivery system without a market price mechanism? Surely the latter is infinitely more complex than the former? Why isn’t simple logic sufficient to demonstrate this?

Now, the absence of system much freer than ours is in and of itself merely the absence of a good example. One might point to our own system in prior decades (before the 1990’s, for example) but I would agree that one wouldn’t be comparing apples to apples since the medical standard of care has changed too much over that time.

From a practical standpoint, it seems to me that one could start small. Remove the moratorium on doctors and Medicare patients agreeing on prices for physician services. Require transparent pricing. Lower reimbursement for ancillary testing, but allow labs and radiology centers to compete on prices above the base. Leave inpatient services alone for now (where patients are captive audiences). Let these Medicare changes drive innovation in health care delivery as prices start to more directly reflect perceived value.

It will always be easier to provide for charitable subsidies for the poor and indigent if the service itself becomes more efficient and cost-effective, i.e. the cheapest way to provide free shoes for the poor is not to centrally-plan their manufacture for everyone, it is to buy inexpensive ones on the free market and then give them away.

Harrison said...

Dear w

This statement starts you off on a very convoluted argument: "how in a country of 300 million+ can we expect to centrally-plan a health care delivery system without a market price mechanism?"

We don't have to imagine such a system that has in fact worked for years.
We simply need to look at any number of other countries with varying degrees of government involvement in health care.
Pick one.
They all work better than ours.
They all cover everyone with good primary care and good health care outcomes, and at much much lower cost.

Those who argue against government involvement in health care always turn to totalitarian regimes, with inherent corruption and inefficiencies, and there are historical models of this and contemporary models of this in health care and in other markets.
Yes, government involvement can be done badly.
But free markets can also produce bad outcomes.
In fact, that is why we have Medicare in the first place.
Free markets pick winners and losers. Government steps in to add a degree of fairness. That tradition goes back a very long ways too.

Why move our health care system, and 1/5th of our economy into uncharted territory?

The ACA is a modest reform, that has worked well in Massachusetts.

I still don't understand the opposition.


W. Bond said...


Many of your points are subject to confirmation bias, i.e. “the Massachusetts reforms have worked well,” “European social democracy models are superior,” etc.

Many who hold opposite economic views from you would reject your conclusions, of course.

We would agree, however, that the current U.S. system is hardly the counter-example to these other systems. We have, here, prices set by Medicare, and insurance contracts driven by oligopolistic market-share forces that have –at best – an indirect link to supply and demand.

(And really, isn’t CMS arbitrarily tweaking the prices every year for an appendectomy, a pap smear, an ear lavage, a 99213 a little bit like some commissar setting the price of wheat in the Ukraine?)

The fact that no system closer to a free market exists nationwide in the developed world underscores a good point: we don’t know what it would look like. Perhaps (a logical possibility, you’d have to at least concede), when coupled with safety net programs and catastrophic insurance, it might look dramatically better by many measures – including expense and patient satisfaction.

Markets don’t “pick winners and losers.” Markets allow millions of people to decide how best to allocate their growing, but by definition always limited, resources. In the modern world this has resulted in unpredictable and rapid innovation, increases in productivity, and for the last two centuries an (unprecedented historically) exponential increase in wealth/capita.

From a practical standpoint, I did not propose a grand scheme that will never be adopted (that would be pointless) but a modest one. So, why should it be illegal for willing Medicare patients to pay a premium to the orthopedic surgeon that has the reputation for doing the best knee replacements in town? Why can’t the imaging center down the street compete based on price with its competitors? No discounts allowed?

Harrison said...

Dear w

Yes I understand that there are those who hold opposite economic views and they don't agree that the system in Massachusetts has been an improvement or that European and Canadian system work better for holding down costs and providing equal or better care.

But my problem with those who hold those views is that they cannot back up their views.

It is not enough to say simply that one does not trust a piece of evidence.
What evidence that is equally well done proves that the evidence is wrong.

I know statistics can be used badly.
But other systems with varying degrees of government involvement do cover all of their citizens with good access to primary care and hospitals, and they do so at a cost that is much lower than ours.

That is a modest statement in my opinion.
I'm not saying that our system is worthless.
I'm saying that our system is unsustainable, and that there are models that exist that improve on it and they do not rise to the level of social nightmare envisioned by those who point to totalitarian nightmares.

The model in Massachusetts went a long way towards solving the problem with health care coverage, and therefore was a step forward in providing access to health care services for thousands in that state.
It has been popular.

That too is a modest statement.

Based on that, what is the concrete objection to the ACA?
It too is a modest step that will slowly but surely improve access to health care services for millions.
That was its intent.
It delivers on that level.
Why object to that?


Arvind said...

Bob, you talk as though Obamacare is a success already. Just wait for it not only to fail, but to create a monster out of control, and when you are forced to stand in line in a walmart of care for your own care in a few years, you will realize this was exactly what we did not need.

I suppose you have heard that the govt voluntarily withdrew a piece of Obamacare because it was unimplementable and too expensive, in their own words. It will be obvious to you and other proponents of Obamacare that the rest of it is unworkable and massively expensive. Unfortunately, you will have killed of the physician practices by the time you realize this, and will only have large corporate health care where you can get any care (standing in line, of course, to see the next available PA or NP).

Unknown said...

Show ME one, just ONE, European welfare state that is NOT facing bankruptcy soon. Show ME YOUR plan for our single-payer system (Medicare) that will deal with $70 trillion in promises that have no apparent source of revenue to cover them. The numbers please, no pious handwaving about "asking the rich to pay a little more." Where will you come up with $70,000 billion, or what promises will you break?

Harrison said...

Who in Europe has so far defaulted?
England is stable. Germany is strong.
Most of Europe is at risk for reasons other than health care coverage.
Who is proposing single payer?
Where does the 70 Trillion come from? I mean the number. Who has suggested a 70 trillion dollar price tag?
By when?
Over what period of time?

And why do I detect anger?


Unknown said...

Medicare's unfunded liabilities have been estimated from around $50 trillion to $100 trillion. I first heard it from David Walker, former comptroller general of the U.S.

Angela Merkel, Nicholas Sarkozy, and other Eurozone leaders are holding crisis talks.

All of them are worried. Why aren't you?

marcsf said...


2. epiphanyhealth.net

3. direct pay physician practices

BDoherty said...

In my response to my challenge to "show me" that a completely free market, without the government subsidizing care for those who can't afford it and regulating practices that the market doesn't do well (like insurance companies cherry-picking the healthy and wealthy), I see that a C. Ken Smith, MD, an Oklahoma surgeon, blogged in response, which was re-tweeted by the Association of American Physicians and Surgeons.

The gist of his argument:

"That this author is not able to imagine a free market in health care doesn't mean that it is not possible. This is more an indictment of his imagination than a free market health care system. But then, I am being too kind. What does this guy think our system of health care was like prior to the Ponzi scheme Medicare was enacted? Medicare was what drove prices so high that private health insurance became necessary in the first place. The bill my mother has shown me for my birth in 1961 was about $50. An elderly, retired orthopedist here in Oklahoma City has told me that a hospitalization for a hip fracture with its repair was under $300 in the 1950's (even adjusted for inflation this is significantly cheaper than today's cost). No one had insurance. People and/or their families paid these bills and physicians and hospitals couldn't bill exorbitant amounts because people and their families paid these bills..not insurance companies, certainly not the government."

So, his answer is to go back to the "good old days" before Medicare existed????!!!! (Let's take that proposition to American voters . . . ).

But the facts and evidence (yes, evidence is a stubborn thing when it conflicts with one's personal ideology) is that seniors are far, far better off since Medicare was created. The ThinkProgress.org blog does a good job in summarizing the evidence on Medicare's effectiveness:

"Here are the facts: since 1965, "the health of the elderly population has improved, as measured by both longevity and functional status," and senior poverty rates have plummeted. According to a study from Health Affairs, life expectancy at age 65 increased from 14.3 years in 1960 to 17.8 years in 1998 and the chronically disabled elderly population declined from 24.9 percent in 1982 to 21.3 percent in 1994."

Prior to Medicare, "about one-half of America's seniors did not have hospital insurance," "more than one in four elderly were estimated to go without medical care due to cost concerns," and one in three seniors were living in poverty. Today, nearly all seniors have access to affordable health care and only about 14 percent of seniors are below the poverty line. And so, the system isn't only "better off" with Medicare, but the program is so popular that seniors continue to support it in overwhelming majorities and would expand it to younger populations."

I am still waiting for someone to show me a state or country that has successfully ensured access to health care relying solely on free markets. Dr. Smith's call for us to go back to the days before Medicare existed doesn't meet the test.

P.S. Dr. Smith suggests that I have "socialistic" leanings. Hardly, I believe in markets--but I also believe that government has a role in subsidizing coverage and regulating elements of the market that are anti-consumer. That's the American way. And only in American would advocacy for subsidizing people to buy PRIVATE (and in many case, for profit) health insurance be called socialism.

Harrison said...

MDVIP? What is that?
Medicare's unfunded liabilities? Just what exactly does that mean?
And the Eurozone causing me to worry? About what exactly?
The collapse of the world financial markets?
That may happen one day. It certainly would be unsettling if the Euro were to collapse as a currency.
But that is not a likely scenario.
The stable world currency for the forseeable future is the US dollar.
China's economy will continue to grow.
The US economy is not falling precipitously and likely will not even with disruption to European markets.
Trillions of dollars are still invested in US treasury bonds, and that will continue.

There is a lot of hyped fear. It sells media products.
It sells presidential campaigns.

But sound policy decisions require us to look at things methodically.
We have health care access problems and health care cost problems in our system.
Mr. Doherty does a great job with teasing issues out and unbundling them.

I think I'll stick with that, and move slowly with decisions -- certainly as they relate to my practice and also with caution when it comes to writing letters to Congress and advocating positions.

Speaking of that:
I'll be in Washington DC in about 2 weeks for the APHA meeting and I hope to meet with Sen's Feinstein and Boxer, and Congressman Bilbray.
Or more likely, their staff.
That will be good.

Take care

Unknown said...

You need to view Dr. Keith Smith's comments at http://www.kaiserhealthnews.org/Stories/2011/September/16/blue-cross-blue-shield-hhs-exchange-regulations.aspx?p=1 if you really want to hear how to reduce costs by 80% and improve quality. It can't be done without removing the crushing burden of federal rules.

Unfunded liabilities are promises the government made to American seniors that exceed projected revenue. Answer the question: how are you going to come up with some $70,000 billion, or what promises will you break?

Longevity was improving before Medicare. Remember that correlation doesn't prove causality.

European welfare states are not sustainable, and neither is ours. Ponzi schemes always collapse--when they can't find enough new suckers. Look at the demographics. You can't subsidize without taking first, and when you run out of other people's money, what are you going to do?

It is hard to fathom the state of deep denial in medical professionals. It is just so simple: the government doesn't have any money. The end stage of running the printing presses for fiat money is Weimar--or Zimbabwe. Why do you imagine that the Chinese will keep buying our Treasuries indefinitely? They are already cutting back. Are you staking the future of American seniors on the Chinese Communists?

W. Bond said...


The merits and shortcomings of the program aside, your evidence regarding Medicare extending the lives of seniors is an example of the “post hoc ergo propter hoc” fallacy.

Cordially, wbond

Harrison said...

70,000 Billion?
I guess I still would like to see the accounting that comes up with this, and then it would be nice to know how much time I have to come up with the money.
That will take quite a few moonlighting shifts.

As far as the government not having money and the worry that inflation will result in the infinite devaluation of the dollar...and then the collapse of our economic system...there are economists that have argued about this for decades.
We have been in worse debt as a function of our GDP in the past. We are not at an all time high.
We are in uncharted water demographically and it clearly is a concern.

But the issues of health care economics plays out at many levels.
We are a rich country.
We can afford to make promises to our elderly that they will receive care and that they don't have to count on their waning years to be complicated by illness and poverty and being a burden to their children.
We do however have to think through priorities.
It is unlikely that a free market with a profit motive is going to be able to help our elderly with those simple goals.
Historically it did not.
That's why we have Medicare and Medicaid in the first place.

Health care inflation is not a problem confined to the elderly or confined to government programs.

It is a much bigger problem, and it will not be solved easily.

I don't have answers, but I can promise I'm unlikely to be convinced by someone who belittles the opinions of others and writes with a chip on his shoulder and who uses hyperbole and who thinks that we just need to rely on common sense.
I personally don't hold a high opinion of common sense.
It is wrong way too often.

Take care

Unknown said...

For information about the unfunded liabilities, you can do a Google search on "David Walker," former comptroller of the U.S. Here is one source: http://www.ncpa.org/pub/ba689.

I haven't seen anybody refute the numbers--just refuse to talk about them. You could be the first.

As for the collapse of fiat money, it's not just a topic of discussion; it has actually happened repeatedly. See Andrew Dickson White, Fiat Money Inflation in France. The laws of physics and of economics don't change.

Do you think Medicare is doing just fine? Have you recently tried to get a doctor's appointment for a new Medicare patient? The only doctor I could find who would accept my patient is on the carrier's list of opted-out doctors. The free-market safety net.

BDoherty said...

According to the Medicare actuaries' 2011 report, the revenue versus spending shortfall for Medicare, projected over the next 75 years, is nowhere close to $70,000 billion. Here is the relevant statement from the report:

"For HI [Part A] and OASDI [Parts B and D], tax revenues from the public are projected to fall short of statutory expenditures by $3.3 trillion and $9.3 trillion, respectively, in present value terms."

This is a significant shortfall, but the combined shortfall of $12.6 trillion--over 75 years--is a fraction of the $70 trillion that "unknown" uses in his post.

In the shorter term, the HI trust fund is projected by the actuaries to stay solvent until 2024. The Part B and C trust fund is funded out of premium contributions and general revenue from the federal government, not payroll taxes, so technically can't run out of money, but it is growing at a rate that will put enormous pressure on other parts of the budget over the long-term.

Oh, and by the way, the actuaries report that health reform has made things much better, noting the "substantial improvements in Medicare's financial outlook under the Affordable Care Act."

Yes, Medicare is facing a substantial shortfall that will require changes in policy to reduce health care spending and shore up the program's financing, but it nowhere near as dire as "unknown" suggests. Let's stick to the facts, folks.

Unknown said...

Only $12,600 billion, no problem?

Yes, ACA is claimed to have instantly wiped out a big part of the unfunded liabilities. By the same kind of dishonest accounting involved in the CLASS Act.

Here's an article about that from the Sept 2010 issue of AAPS News:

"Medicare Liabilities Wiped Out?

"According to the 2010 Medicare Trustees Report, $51.5 trillion of the $106.8 trillion of unfunded liabilities of Social Security and Medicare reported in 2009 for an infinite time horizon were wiped out with the signing of ACA. It shows 'how the Affordable Care Act is helping to reduce costs and make Medicare stronger,' said a White House statement (Wall St J 8/9/10).

"Even the $6.2 trillion decrease in Medicare’s 75-year liabilities is 'unbelievable,' writes John Goodman (www.john-goodman-blog.com 8/10/10). Medicare’s chief actuary Richard Foster apparently agreed, as he took the unprecedented step of issuing a companion analysis that repudiates the previous 280 pages. The trustees’ estimates 'do not represent a reasonable expectation for actual program operations.' They assume a 30% cut in payments to physicians in the next 3 years and a continued decline thereafter. Cuts in payments to hospitals, skilled nursing facilities, and others will make one in seven unprofitable by 2019.

“'There is no more effective cost control device...than the simple expedient of denying people care,' Goodman writes.

Harrison said...

“'There is no more effective cost control device...than the simple expedient of denying people care,' Goodman writes.

Yes, this is true but it is also an unavoidable fact no matter how you structure this.
You either pay for care or deny it.
There is not 12 Trillion or 70 Trillion worth of middleman waste in the government system.
In fact, that is more likely to be the case in the private system.

But the middlemen are people too, and so those dollars are jobs that help our economy in some way.

If we cut waste in the system, then we are eliminating jobs and making more people susceptible to being marginalized and in need of assistance.

It is unlikely the 'job creators' will come to the rescue.
That would get in the way of their accumulation of wealth.


Danlj said...

I'm a bit late to the party on this one, but everyone is missing a basic economic point: The law of supply and demand has been working for years to inflate medical care costs of all types:
- We have put a tight noose around "supply" by quality-related certification and licensing, and through the expense of professional training and product market entry.
- We have boosted demand by allowing the scientific method to make diagnosis accurate and treatment actually effective.

With these powerful influences (and others) at work to increase prices and costs, we can moderate healthcare inflation only by allowing free entry of products and professionals to the market -- and no one would be willing to return to 1900's free-for-all d/t the human cost in suffering.

The only moderating influence can be regulation: either by putting a price-control lid on the pressure cooker or by making market entry and training much less bureaucratic and costly.

If you know how to do this, and understand how to 'sell' it politically, please tell the world, from a tall soapbox with a big megaphone.