December 23, 2011
The United States pays more than twice as much per person for its health care as the average for other wealthy countries. It has little to show for this in the way of outcomes as it ranks near the bottom in terms of life expectancy. If we paid the same amount per person as people in other wealthy countries then we would face no long-term deficit problem, as the long-term projections would show budget surpluses rather than deficits.
This is why it is striking that a lengthy Washington Post article on health care never mentioned the sharp contrast between health care costs in the United States and elsewhere in the world. This implies the potential for large gains from trade. For example, if beneficiaries opted to buy into the health care systems of Canada, Germany, or England, the Medicare projections imply that there would be tens of thousands of dollars a year in annual savings that could be split by the government and beneficiaries. A less protectionist paper would have noted these opportunities.
The article also includes a couple of assertions that are questionable or could use some further elaboration. It cites House Budget Committee Chairman Paul Ryan as saying that:
“cutting provider payments beyond the targets in the Affordable Care Act [is] a sure path to Medicare’s collapse.”
Given the size of the Medicare program, it is not clear that many providers would have much choice but to accept lower rates. This is almost certainly true in the case of doctors. There are few wealthy patients who do not currently have all the physicians’ services they want. This means that if doctors refused to take Medicare patients because they considered the payments inadequate they would simply have to work less or retire early. Since most doctors probably cannot afford to do this, they would likely have little choice but to accept lower pay. (Of course if we removed the protectionist barriers that exclude qualified foreign physicians there would be plenty of doctors willing to accept much lower Medicare payments.)
The article also fails to note the reason that Medicare Part D has cost less than projected. According to the Food and Drug Administration there has been a sharp slowdown in the development of breakthrough drugs. It is possible that the decision to run Part D through private insurers is responsible for the slowing pace of technical innovation in the drug industry, but it is difficult to see how this would be the case. However, if the proponents of this decision (using private insurers rather than Medicare to run the program) want to take credit for slower cost growth, this is what they would be claiming.
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