The 100% Estate Tax

There is a dangerous but beguiling econometric logic behind the idea that turning Medicare over to the insurance industry will lower health care costs. It’s an idea that could catch on if the general public became convinced that there is nothing we can do acting together as a society to lower the cost of care. Only the market can do it, the Republicans claim. Force seniors (or the poor or anyone, for that matter) to have more skin in the game, and they’ll use their clout as consumers to separate the wheat from chaff in modern medicine. Expensive, wasteful tests, procedures, and drugs will wither for lack of customers.

Democrats, in attacking the Republican plan that passed the House yesterday, relentlessly hammered away at the cost to future seniors of having “more skin in the game.” Two-thirds of the cost of care within a decade of Medicare privatization in 2023 will fall on them. But the 2030s must seem very far away to people in their 40s and 50s. Isn’t it likely that they won’t think about that far-off time, but instead grab on to the promise of future lower costs, which, let’s be frank, the Affordable Care Act (health care reform) may not be able to achieve.

So here’s the real argument young and middle-aged people need to hear, and the real reason why the “more skin in the game” argument can never work for seniors or other vulnerable populations, including them when they reach that age. Seniors and the poor account for over half of health care spending. Within those groups, 5 percent of the population accounts for 50 percent of health care costs; and 20 percent of the population accounts for about 80 percent. These costs come for the most part at times when economic incentives have no influence at all on medical decision-making: in medical crises; in treating chronic conditions; and, for most Medicare patients, in the last six months of life.

That’s why a voucher program for Medicare, which will shift an increasing share of those inevitable costs onto the elderly themselves, can fairly be categorized as a 100 percent estate tax or death tax. People under 55 need to know that if the plan crafted by Rep. Paul Ryan were passed, most of them will never have a cent to leave to their children. It will all go to the health care industry to support the American way of dying.

Merrill Goozner has been writing about economics and health care for many years. The former chief economics correspondent for the Chicago Tribune, Merrill has written for a long list of publications including the New York Times, Financial Times, The American Prospect and The Washington Post. You can read more pieces by Merrill at  GoozNews, where this post first appeared.

24 replies »

  1. I actually wanted to type a word so as to appreciate you for all of the lovely advice you are sharing on this site. My time consuming internet investigation has at the end of the day been compensated with reliable points to write about with my good friends. I ‘d state that that many of us readers actually are unquestionably endowed to be in a decent community with so many special people with helpful guidelines. I feel rather blessed to have discovered your entire site and look forward to tons of more pleasurable times reading here. Thanks a lot once more for everything.

  2. I just like the helpful info you supply to your articles. I will bookmark your blog and check once more here regularly. I’m quite sure I?ll learn a lot of new stuff right here! Best of luck for the next!

  3. The Canadians, the Germans, the Nordic nations, and the French spend less on health care than we do — and their citizens have not had “skin in the game” for atl least sixty years.

    (The Canadians have no deductibles or co-payments, and the Germans/French have out of pocket limits in the neighborhood of $300 a year.)

    They accomplish cost control by means of firm uniform national fee schedules for doctors, hospitals, and insurance companies — not by
    ‘skin in the game.’

    America has a weak government in this regard, so we are in effect asking patients to be the kamikazes of cost control.

    This does not mean that our nation is evil or hopeless — just let’s be honest about what we are doing with ‘consumer choice.’ Anyone who has cared for a very sick relative knows that consumer choice is often a sick joke.

    Bob Hertz – The Health Care Crusade

  4. My charity care amount is already over 50%, if you call theft by legislation “charity”.

  5. Obama’s position is no different regarding the electorate. He has carved out the welfare, social security, and Medicare populations so as not to antagonize them prior to 2012.

  6. Most Medicare spending occurs within a few months prior to death, i. e. “end of life” care. There is no benefit and there is no need to do this if we do not fund it.

  7. Nobody mentioned end of life. If it’s OK to scare the bejeebers out of folks with fictional death panels, why is it not OK to point out that if their vouchers run out, as they will practically before they are issued, they will have to go home and die? Or are you planning on increasing your charity care amounts to say, 50%?

  8. I beg to differ, imdoc. I have a pretty good grasp on the value of primary care, but folks with $5 in their pocket, needing to buy food, heat, gas and pay rent, will have to make some hard decisions, and as we’ve seen before, immediate physical needs trump thoughtful long term considerations every single time.

  9. I doubt it would reduce economic productivity of workers but Ryan’s plan is supply-side economics on steroids that even someone like the Heritage Foundation admits that is ‘very optimistic’ in their growth assumptions. There essentially so ridiculous there laughable.

    Ryan’s plan could have large scale unintended consequences too including delimitating the consumer spending side of the equation as people suddenly have to save alot more than their annual savings rate of 4%, it could put a dramatic squeeze on the healthcare industry, and it would likely add alot more fuel to the financial markets as capital gains moves to 0%. It doesn’t do anything to address american’s aging and crumbling infrastructure, massive bloated defense budget, or invest in America’s basic education. It is a plan with a few adequate basic points but horrendous specifics with laughable economic assumptions and growth projections. Sometimes no plan is worse than no plan and it isn’t close to Simpson-Bowles it several aspects especially the tax increases and defense spending cuts. The GOP is just relying upon the stupidity/laziness of the American public and that is a winning bet almost all of the time.

  10. What about people who need basic knee replacements or get an autoimmune disease such as lupus as my mother did? Your glib remark is largely baseless. Even then, you basically got cancer that pretty much would be it as the costs for treatment would likely run someone dry.

  11. Life expectancy is not determined by futile end of life care. Quit the mindless fear-mongering.

  12. I don’t think you have a grasp on the value or cost-effectiveness of primary care. If people paid more of their own bills they would seek value for their money. That comes in the form of comprehensive care provided by a good personal physician. To think that no one can or should be in charge of his/her own health care is cynical. Paternalism often masquerades as compassion.

  13. “I think the message is that when people have to pay for care, the costs will adjust (i.e., lasik surgery and cosmetic procedures). Will that happen?”

    Maybe, for some things that people consider non-essential, like lasik and boob jobs. The problem is that people will consider routine doctor visits like prenatal care, well baby care and checkups for non life threatening symptoms, like persistent chest discomfort, shortness of breath, small lumps here and there, etc. to be non-essential. So primary care will get further devalued.
    On the other hand, when they finally show up at a medical facility with a late stage, expensive and often incurable condition, they will be faced with the classic “your money or your life” situation. And it will be a lot of money at that time, to make up for lower volume, so most folks will have to go home and die for lack of funds.
    Eventually non-affluent people will start dying from things that are considered chronic and treatable today. We will regress by about 50 years and total cost of care will go down accordingly.
    So Mr. Ryan’s plan does have reasonable potential to reduce health care costs along with life expectancy, productivity and economical output in general.

    This is not about either health care or deficits. It never was.

  14. I think the message is that when people have to pay for care, the costs will adjust (i.e., lasik surgery and cosmetic procedures). Will that happen? I’ve often wondered why each episode of care costs so much. For instance, the cost of emergency transport by helicopter? The cost of a hysterectomy? Should we have people pushing back on those costs if they have “skin in the game”? I don’t know, but I think we have to do something. I don’t want to pay so much in taxes that I don’t have anything left to enjoy some retirement years. And I’m not asking for someone else’s taxes to pay for my care, either.

  15. “As someone under the age of 55, I am mystified that this message isn’t sent more clearly to people my age.”

    The short term political expediency in the Ryan Rand calculus is aimed at assuaging the more than 40-some million people now 65+ (and, if you add in those who will be 65+ by the end of the decade, just above the “grandfathering-in” age cutoff, that number — of VOTERS — will swell to an estimated 55 million or so). He’s trying to buy them off, and hoping no one 54 or younger will really notice the ploy.

  16. Thank you. As someone under the age of 55, I am mystified that this message isn’t sent more clearly to people my age. Regardless of how much you save (and I save at a 8-10% annual clip), you will almost certainly pass nothing to heirs and face a “Sophie’s Choice” dilemma at some point early in your retirement.

    If Ryan enjoys this plan so much, I am sure that he would join in and renounce his lucrative socialist pension and health care retirement benefits he is entitled to a member of Congress.

    Medicare needs reform. Ditto the US healthcare financing system. I am not even opposed to a tax credit/voucher system but Ryan’s plan (utterly laughable economic assumptions aside) was basically a huge ‘FU’ to everyone under the age of 55. Sorry if I don’t act so nonchalantly to someone who basically spits in my face and then has the gaul to not call for any sacrifices for current seniors and the Boomers while completely exempting himself for the prescribed medicine to cure America’s long-term financial woes.

  17. You are correct, Mike.

    My 89 year old mother is living far too large on her $938 a month SS check (out of which come Medicare Parts B and D premiums, btw). But, she is also giving back the family “estate” (comprised of 2 residual bank accounts I manage as her POA, basically what’s left of the sale of their house, my late Dad’s life insurance, and their other net savings) to the monthly tune of about $6,500 for self-pay long-term care, for about 3.5 years now.

    Apropos of the ease of the upper class rousing the “rabble” against their own interests, Google “Paul Ryan” “Ayn Rand.”

    The Ryan et al plan is to turn social entitlements into low threshold means-tested “welfare” as the first step in effectively killing them outright.

  18. And let’s add, always, the question of regressivity and progressivity. The poor already leave little to their children, and the wealthy are buying politicians to ensure that they can create a new landed aristocracy that spans generations. But middle class individuals with perhaps a house or some other assets will be forced spend down to zero… at which point they will die.

    Of course analyzed politically this attack on the middle-class and upper middle class’s prospects for passing on a small inheritance to children may not look too alarming to lower middle class and impoverished Americans who have never had that ability, and that is reflected in the Tea Party constituency… lower-middle class dupes chanting slogans crafted by extremely wealthy propagandists.

    But the analysis is sound and it reflects the far-gone state of American politics. It’s pincer politics… the middle class under attack from above, using the inchoate but deftly channeled frustrations and easily coopted feelings of the lower middle class. It’s more complicated than that, of course… but that’s not too far from the truth either.

  19. “These costs come for the most part at times when economic incentives have no influence at all on medical decision-making: in medical crises; in treating chronic conditions; and, for most Medicare patients, in the last six months of life.”

    Not true.
    Rep. Ryan’s plan is proposing that during those times you mention, or planning ahead for those times, poor and elderly people should passively commit suicide, if they want to leave anything in their estate, assuming there is even an estate anywhere in sight, which for most there won’t be.

    In essence, patients will be “empowered” to conduct their own personal “death panels”, with no intervention from “government bureaucrats”, unless they have tons of money, of course, which exempts you from both patient “empowerment” and paying taxes.