Arnold Kling  

Fixing Medicare with Vouchers

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Congressman Paul Ryan is the first politician I have seen with a plan that makes Medicare sustainable.


The bill secures the existing Medicare program for those over 55 - so Americans can receive the benefits they planned for throughout most of their working lives. Those 55 and younger will, when they retire, receive an annual payment of up to $9,500 to purchase health coverage - either from a list of Medicare-certified plans, or any plan in the individual market, in any state.

The payment is adjusted for inflation and based on income, with low-income individuals receiving greater support and a funded medical savings account.

The sustainability problem with Medicare, as Peter Orszag is fond of pointing out, is due largely to the fact that health care spending is rising faster than GDP. What Rep. Ryan is proposing is to change Medicare from an open-ended entitlement to reimburse people for whatever expenses they incur to a voucher system.

The voucher system would allow the government to control the budget. If the elderly want to continue to increase their health care spending faster than the rate of inflation, they will have to dig into their own pockets to do so.

I prefer to phase out Medicare. A universal voucher system still involves a lot of recycling from taxpayers to recipients, when personal saving should be encouraged instead.

But give Representative Ryan credit. The biggest institutional crisis in health care in this country involves Medicare. And he would actually do something about it.


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COMMENTS (9 to date)
Mitch Oliver writes:

While I would also prefer to see Medicare phased out, I would take Rep. Ryan's proposal one step further and suggest that Medicare be transformed into an HSA program.

I think it would be a huge step to do this for the VA as well. I first was inspired to this when reading Operation Homecoming. In it is the story of a soldier raising funds so that he could get therapy from alternative facilities to those the military were providing. Rather than spending a tremendous amount "fixing" our in-country military health care, I think our soldiers would be best served by transforming much of their medical coverage to an HSA that they can take to whatever care provider they choose.

Here's hoping some intrepid representative is reading this...

Larry writes:

The problem with Medicare is that a lot its recipients have little income and huge medical expenses. 10k/year would leave millions high and dry, with 10s or 100s of thousands of dollars in bills. Unfortunately, it's a non-starter.

HSA's work great for people who are reasonably healthy. Many seniors are, but many aren't.

RL writes:

I disagree with Larry. First, Medicare is the those 65 and older. This group, as a whole, is the wealthiest group in the country. The fact one can always find exceptions to the rule is not a reason to not try and improve the rule.

Second, while HSAs (WITH an accompanying catastrophic insurance plan) cost more for those (such as myself) with lots of pre-existing illnesses, noting this fact is simply re-stating the problem. That's a problem for Medicare too. The Medicare solution is to hit the taxpayer with huge unfunded liabilities. Everyone gets sick eventually. The benefit of the HSA is that the fund grows over time while you're well, so you have enough set aside when you're sick. Dealing with people already sick at the program's inception is just start-up costs. HSAs are still a deal for the sick, just not as much of a deal.

Dan Weber writes:

As Overtreated pointed out (and something I was really surprised by), the most efficient health care in the country right now is happening through the VHA. They treat their over-65 population at a cost of about $3,500 per person, IIRC, and get excellent approval ratings.

I'm not sure if there's any reason to suspect that the VHA's elderly are healthier than the elderly of the population as a whole. They sure do seem to smoke a lot more.

I haven't read Ryan's bill, but one problem with any voucher plan for medical care is that the insurance companies need to practice adverse selection. Requiring companies that take any of these vouchers to take all vouchers would go a good way towards remediating that, but it still seems like it leaves a lot of money on the table for the healthy seniors.

Lord writes:

By 'fix' I assume you mean destroy. Yes, that would work.

Dr. T writes:

The proposed voucher system will not help. As soon as the ink dries on the bill, the elderly would be screaming that high medical inflation requires that voucher amounts be raised. Every year, Medicare recipients would petition for bigger vouchers, and Congress always will pander to this big voting bloc.

Ethnic Austrian writes:

Shouldn't those baby boomers have saved for their retirement anyway? They enjoyed lower income tax than us welfare nation dwellers after all. I've read that americans even have a negative savings rate nowadays. Americans reject the welfare state, proudly emphasize self-reliance, yet they spend like drunken sailors. This seems highly counter-intuitive to me.

One big underlying problem in health care is that elderly recipients are often senile or at least not capable enough to be rational market participants.
This on the other hand shouldn't lead to a situation where everybody is treated like a custodian.

@Dr. T:
I totally agree. And it is not just about inflation. Patients are going to complain if their vouchers are not sufficient to pay for the costly cutting edge medical procedures that their doctors would recommend.

What is the deal with the libertarian love with vouchers anyway? Are we talking about actual pieces of paper that get handed out?
Take school vouchers for example. The austrian governement subsidizes all schools, public or private, roughly based on student enrollment figures. This gives freedom of choice to parents, leads to competition between schools and allows individuals to start their own schools.
Vouchers would only add unnecessary bureaucracy to the system.

Maybe I'm mistaken about the contemporary use of the word "voucher".

Peter Finch writes:

To Dan Weber:

Presumably at some point VHA patients were fit exercisers. They are pre-selected to not include people with congenital heart defects, childhood cancer, and some chronic ailments, etc, by virtue of their military service. Also, they are disproportionately male, which I _think_ predisposes them to quick death even if they reach old age. Cheaper and healthier aren't quite the same thing.

So it's not a completely fair comparison. But yes, that number seems pretty low.

Dick Wogon writes:

This is again taxpayer money funding private plans and my supplement for my wife and I is now 400 dollars. Where do you think it will with private companies only in it for profit and it supports the big Insurance companies once again.

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