The Economic Cost of Medicare’s Inefficiencies
Amidst the debate about raising the debt limit and entitlement reform, it’s worth highlighting an article released earlier this week by two commissioners of the Medicare Payment Advisory Commission (MedPAC), which forms the basis for the board of “experts” included in Obamacare. Both Kate Baicker and Michael Chernew conclude that Medicare is both fiscally and economically unsustainable in its current form and needs a fundamental restructuring:
The public financing of Medicare has particular implications for the economy. Specifically, raising taxes to pay for public insurance exerts a structural drag on the economy even if the revenue is spent on care; the same is not true of unsubsidized, privately purchased care or insurance. The net size and timing of the economic consequences depend on how the taxes are raised and how the revenue is spent. Deficit spending on health care also carries an economic cost: taxes are required to pay back any borrowed money (with interest), and rising debt-to-GDP ratios may have calamitous effects on the country’s future ability to borrow….
An analysis performed by the Congressional Budget Office (CBO) before [Obamacare] was passed suggested that income tax rates would have to increase by more than 70% to finance health care spending that grew just 1 percentage point faster than the GDP — and by more than 160% to finance growth at the historical rate of 2.5 percentage points faster than GDP growth, increasing the income tax rate in the top bracket, for example, to 92% from 35%….
Medicare’s design generates inefficient utilization, which imposes broad indirect costs on all patients. For example, fee-for-service payment discourages coordinated care, and if Medicare benefit or payment design encourages investment in inefficient resources or inefficient care patterns, that can also drive higher and inefficient private spending….
Even if [Obamacare] achieves its ambitious goals, Medicare would still need extra resources to solve this demographic problem [i.e., the retirement of the Baby Boom generation]. Although some additional resources could come from reducing waste in the system, no industrialized country has ever achieved sustained growth rates of health care spending below that of the GDP, so it seems unlikely that Medicare’s growth could be reduced below the projected [Obamacare] trajectory.
They conclude that Medicare’s current structure raises costs, kills jobs, and CANNOT be solved by tax increases. Or, in other words, we don’t have a taxing problem – we have a spending problem.
What have Democrats suggested to solve this looming crisis? Not much. President Obama made vague paeans to additional entitlement means testing at his press conference this morning, but he has yet to issue ANY specific proposals for reform, despite being required by law to do so. When will the President and Democrats finally bring forth a Medicare reform plan?