Tag: Dave Dranove

Medicare Musings

I have been thinking about the connection between healthcare cost growth and the budget crisis. Many pundits have pointed out that rising Medicare costs are one of the biggest contributors to our budget mess. Republicans want deep cuts in future Medicare spending while Democrats are sensitive to constituents who demand the Congress keeps its hands off “their Medicare.” Current Medicare spending growth trends are unsustainable – at some point the math will trump the politics.

There are several options for putting Medicare on a much lower cost trajectory. Here is what I have come up with:

1) Do nothing but pray. Projections of future spending growth are mostly guesswork. Maybe the guesses are wrong. Consider that technological change has been a major driver of cost growth. (It is interesting to ask why medical technology nearly always seems to cause spending to increase, but I will save that for another blog.) Perhaps medical science has reached the bottom of the well and that output of costly new technologies will slow to a trickle. Of course, this will also mean that a century of advances in medical care will come to an end. I don’t know if we will really be better off; we will spend less on medical care than we projected, but we will also receive fewer benefits than we projected. Besides, the head-in-the-sand approach to cost cutting hasn’t worked yet. (Note to readers. Please do not comment that we can save the system through prevention. The Committee on the Cost of Medical Care already made the same point – in 1932.)

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Vermont’s Bold Experiment

I was delighted to see the lead article in Health Affairs describing Vermont’s new single payer health care financing system. Harvard Professor William Hsiao and his coauthors describe this as a “Bold Experiment” and I couldn’t agree more. It is also a very welcome experiment. For over thirty years I have heard the rhetoric that a single payer system would never work in the United States. For that matter, I have heard that a true market-based system (with vouchers) would never work either. Why not let the states experiment and find out what will and won’t work? Thankfully, the Vermont legislators and Governor Shumlin had the courage to take this leap of faith.

The biggest obstacle to implementation appears to be ERISA, which limits the extent to which states can regulate self-funded plans. Apparently, self-insured employers could object to having their tax payments used to support the plan. But Vermont can apply for an ERISA waiver under terms in the Affordable Care Act and the state hopes to begin its bold experiment in 2015.

As bold as the plan might be, Hsiao et al. might be even bolder in projecting the potential cost savings, which they peg at 25.3 percent. Academics rarely go out on a limb with projections like this that can easily be assessed in a few years time. And academics are rarely so optimistic. I wish I could share that optimism.Continue reading…