Medicare: More nuanced than meets the eye

Amid all the talk of a government shutdown, Democratically aligned
outside interest groups started running commercials against
congressional Republicans about something that had absolutely nothing to
do with the government shutdown: Medicare.

This issue is where the Democrats hope to mount their comeback in the
next campaign. This is where they believe Republicans are vulnerable to
charges of hypocrisy. This is where they think they can best recapture
the senior-citizen vote. And this is where they have a long and
successful history of demagoguery that has helped them win elections in
the past.

Lyndon Johnson signed Medicare in 1964 as part of his Great Society
program. At the time, Republicans denounced it as socialism, but as the
program became more and more popular, they changed their tune. If you
can’t beat them, join them.

Johnson created Medicare because of a market breakdown. Older Americans couldn’t access health insurance, because health insurance companies saw little upside in selling an insurance policy that was certain to cost them a lot of money. Government stepped in where the market wouldn’t.

But over the years, the government has distorted the rest of the healthcare marketplace, and worse, has put the taxpayers on the hook for a huge, unfunded liability. Because politicians don’t like to make tough choices, they have decided to take the easy approach on Medicare spending up until this point, and let the deficit continue to grow. After all, kids can’t vote.

The government has tried to put in price controls as one way to control costs, but the result has not been controlled prices, but rather an uncontrolled departure of quality doctors from the Medicare program. Good doctors would rather leave the program than stick around and get paid at a diminished rate.

Medicare has four parts. The first two, Part A and Part B, reimburse hospitals and doctors for care, and are the traditional Democratic responses to a problem. The government institutes price controls and pays the bills. Part C and Part D, the so-called Medicare Advantage program and the Prescription Drug benefit, attempt to use market force and competition to provide seniors with higher-quality but lower-cost healthcare.

Not surprisingly, Part A and Part B are the parts of Medicare that are causing the most problems. Part C and Part D are the parts that Democrats hate the most and that have been under attack from liberals from their start.

Paul Ryan, in his budget proposal, is trying to implement a premium support Medicare model, based loosely on the Medicare Part D model. He is trying to use market forces to create a better marketplace for hospital and doctor care for senior citizens. He believes that market forces can help slow down the exponential growth of Medicare spending.

The market for senior citizen health insurance is more viable now than it was in 1964. One reason is that seniors are living longer, in most instances 20 years longer, which means that insurance companies can find a model to make some money. Second, the rise of prescription drugs gives doctors a cheaper and more efficient way to deliver care.

That is not to say that the marketplace can take care of seniors’ healthcare by itself. Clearly, the government needs to help some folks, especially poorer seniors who have not planned well for their retirement or are beset by bad health and bad luck.

But the government shouldn’t unnecessarily and inefficiently distort the marketplace, when it can achieve a happy medium that uses market forces to hold down costs while providing superior service to our seniors and a strong safety net for our most vulnerable citizens.

It is hard to communicate what Ryan is trying to do, especially when the Democrats are trying so hard to obfuscate the issue and score political points. But communicating effectively is essential to the ultimate survival of congressional Republicans in the next election, and the ultimate survival of a more balanced approach to making Medicare solvent for the future. 

There are no absolutes when it comes to Medicare. The government rushed in to fix a market failure in the ’60s, and now it is the principal cause of the market failure. Finding a balanced approach that protects the most vulnerable as it protects the taxpayer, using market forces and competition, will be difficult, but it is not impossible. It will require leadership from the president and courage from Republicans. Republicans have showed that they have plenty of courage. We are all still waiting for some sign of leadership from the president.