Why Medicare Is Such an Enormous and Urgent Fiscal Problem


An article in today’s (April 4, 2013) New York Times, “Misperceptions of Benefits Make Trimming Harder”, explains why Medicare is such an enormous and urgent fiscal problem for the federal budget.  The article points out that an average single male who retired in 2010 will receive more than $100,000 in Medicare benefits in excess of what he pays into Medicare in taxes before retirement and premiums while receiving benefits.  The gap is projected to grow for future retirees.  Too many people are not aware of this huge discrepancy between what they pay into Medicare compared to the benefits which they will draw out after retirement.
According to the reporter, Democratic leaders, including the President, are aware of this funding gap but are unwilling to discuss it publicly.  Instead they take the easy way out by criticizing Republicans who do want to address the problem in a responsible manner.
The problem is so serious that trims around the edges, such as means testing and/or higher premiums for affluent retirees, will not accomplish anything more than making a small dent in the funding gap.  Raising taxes will not get the job done either because they would have to go up too much and too often as the problem keeps getting worse and worse.
The only way to really solve the problem is to control the costs of Medicare (and more generally for all of health care).  There are two basic ways to do this.  One way is to have a government run single payer system with very strict rationing.  The other way is to make everyone, including seniors, financially responsible for their own health care, with subsidies for people with low incomes.
The challenge for Republicans is to frame this basic choice as clearly and vividly as possible.  The American people must come to realize that the status quo in health care cannot continue.  If this message can be delivered effectively to the broad public, I am confident that a majority of people will want a free market system with choice rather than severe government rationing.

4 thoughts on “Why Medicare Is Such an Enormous and Urgent Fiscal Problem

  1. If the “responsible” solution is to Medicare costs is to have people be more responsible for their healthcare costs, why is there even a problem at all? 30-40 million people have no insurance and are 100% responsible for their costs– yet no market solutions.

    Why are dental care costs not constrained? There is no Medicare for dental care and most people pay 100% out of pocket, yet costs are going up nearly as fast as all other healthcare.

    So your perscription has been followed, yet the market has not come through with a solution. I’ve given you plenty of links describing this before, but you did not respond.

    So I ask you again– why specifically has there pretty much *never* been a successful free market in *any* healthcare area? Why doe the market always fail in this area?

    Usually you recommend Singapore as an example to follow, but as I’ve shown you in the past that is definitely *not* a free market system as the government totally runs it and dictates prices and coverages.

    Do you still recommend that system? If so, how do you resolve the fact that you are then *not* endorsing a market but a government system?

  2. Of course the government is going to be involved in health care. The question is how to do it in a way which creates lots of incentives for individuals to hold down the costs of their own care. It appears that Singapore has an excellent model in this respect. Almost all Singaporeans have Medisave into which they pay 7 or 8% of their income each year. MediShield catastrophic insurance is optional for which you pay extra. In public hospitals, which serve 80% of the population, 1-2 bedded rooms require full cost, patients in 4 bedded rooms receive a 20% discount while open dormitories with 8 or more beds give an 80% discount. This is a huge incentive to cut costs! The introduction of expensive new technology is regulated by government, which also holds costs down.
    The biggest problem in American health care is the lack of cost incentives for the majority of the population covered by employer provided health insurance. Anything that insurance covers appears to be free so why pay attention to the cost? This is what is eating us alive and what has got to change. Either we solve the problem in a rational manner or radical change will be forced on us by a huge fiscal crisis, much worse than what happened in 2008.

    • Yes, part of Singapore’s (successful) cost control methods is forcing patients to pay for part of their healthcare, which causes them to make choices that take cost into consideration. But you always act as if that’s it– just have government force the patient to have skin in the game and a market will be created and the problem will be solved.

      But you’re ignoring the fact that there other things the government in Singapore does to lower costs. They FORCE people to dedicate a certain percent of their pay toward healthcare (very similar to the Obamacare individual mandate), they REGULATE COSTS on the supply side (exactly as Obamacare is designed to do), and they REGULATE COVERAGE (again, like the Obamacare mandates on pre-existing conditions, etc.).

      So basically Singapore’s system is much like Obamacare. Do you support Obamacare? In your post of March 10 you seemed not to support it. In that post and here, you only focus on the “skin in the game will create a market and lower costs” side of the argument. You seem to think that government regulating (or even controlling) cost and coverage is unnecessary or very minor compared to the saving that would come if people would be forced to pay more out of pocket.

      So which is it in the Singapore system that results in all that cost saving? Is it the fact that people pay more out of pocket (as you say), or is it that government controls cost and coverage (as I say)?

      To answer that question, I have twice pointed to dental care. There is no Medicare for dental health and most people don’t have insurance (or full insurance) so most people pay a large part (or all) out of pocket.

      So if you are correct that a higher percentage by direct, non-third party, out of pocket payment will result in lower costs, we should have very low-cost dental care in this country. However, if I’m correct that healthcare (including dental) is a classic case of economic market failure, then dental care costs will not be contained.

      Looking at the data, it can be seen that dental care costs in the U.S. have rising substantially in the last decade:


      and the ADA predicts that dental care costs will grow nearly as fast as all other healthcare through 2021:


      So it would appear that your hypothesis that healthcare costs will be controlled if people are forced to pay more and watch costs is proven to be incorrect.

      You ignored my question in your answer, so I will ask again– how do you explain this? How do you explain the fact that in healthcare areas where people pay a substantial (even the whole) part of their healthcare it has not resulted in lower cost? Would this not prove that it’s the government regulation side of the Singapore formula that is resulting in the majority of the cost reduction? If so, don’t you have to support Obamacare since it is attempting to do the same thing in nearly the same way?

  3. Singapore has figured out how to control the cost of health care, within the context of much individual choice, and we have not. Singapore is spending 3 or 4% of its GDP on health care and we spend 18% of GDP on health care. We spend at least twice as much of GDP as any other country in the world! And our costs are predicted to increase even faster as Obamacare is introduced. Our private health care is subsidized by the tax exemption for employer provided health care. Just making the one change of replacing this tax exemption by a uniform tax credit for everyone would introduce a huge incentive for individuals to pay attention to costs.
    The only cost control for public health care (Medicare and Medicaid) is to limit payments to providers which can only go so far. Either we as a society figure out how to do a much better job of limiting the cost of public health care or we will be forced to introduce severe government rationing (I’ll refrain from using Sarah Palin’s term for it!). The Republican’s have proposed ways to do this. The Democrat’s respond by stonewalling and demagoguing, not by offering serious alternatives.
    Dental care is not the issue. If we can figure out a framework for providing quality health care and free choice with cost control, dental care can be included in the new framework.

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