Thursday, September 8, 2011

Medicare and Republican Dogma

When defending his plan to replace Medicare with vouchers, Rep. Paul Ryan often points to Medicare Part D, the prescription drug component of Medicare, which relies heavily on private prescription coverage. Ryan points to the government's costs for Part D being about 40% under the projections made when the bill was passed in 2003. He claims that this proves that competition and private markets are more efficient than public programs. Unfortunately for him, the facts of Medicare Part D, as well as a comparison of Medicare vs. private health insurance, demonstrates that this is just not the case. The failure of Republicans to recognize these facts is another example of the zealous misplaced faith in free markets as a solution for every problem every time.

In 2003, when Medicare Part D was passed, it was projected that 93% of eligible seniors would sign up for the program. In fact, only 77% of those eligible enrolled. Additionally, overall drug spending, not just spending within Part D, came in 35% below the projections made in 2003. This is due to several drugs becoming available generically, fewer new expensive drugs, and the rise in the number of prescriptions per senior not rising as quickly as projected. Most if not all of the "savings" Ryan points to come from factors which have nothing to do with the private nature of the plans.

Looking at Medicare since implemented, it has consistently shown a superior ability to control costs than private health insurance plans. As shown in the National Health Expenditures Data (.pdf, page 17, Table 14), between 1970 and 2009, the per-enrolee expenditures for Medicare have increased at an annual rate of 8.3%, compared to 9.3% for private health insurers. Since 1999, the annual advantage for medicare has been larger, between 2 and 2.5% per year. Thanks to the miracle of compound interest, it works out to private costs increasing over 60% faster than Medicare over the past decade (my calculation based on the percentages in the .pdf above).

Per the CBO, a Medicare plan for a senior is 11% cheaper today than providing the same benefits would cost if purchased from a private insurer. This is largely due to the massive bargaining power that Medicare has, given the huge number of people it covers. The CBO projects, based on the different rates of growth like I discussed in the previous paragraph, that by 2030, a Medicare plan would cost 30-40% less than a private plan.

Rep. Ryan's plan proposes a subsidy for private insurance that, in 2030, would be worth about 32% of the cost of a private plan, per the CBO. Given that a Medicare plan would be cheaper by just about that same amount, seniors would be better off if the government kept Medicare going but completely eliminated the subsidies than they would be with being forced into a subsidized private plan.

Ryan and other Republicans are incapable of recognizing the errors in their approach to Medicare because it is antithetical to their free-market dogma to think that a government program could be more efficient than a privatized system. We have 40 years of Medicare history that clearly demonstrates that they are wrong.

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