Obama, Ryan and You

Both parties are being disingenuous about Medicare reform. So let me be the first to open Pandora’s box and reveal three unpleasant truths.

First, health care spending is growing at twice the rate of growth of our income — clearly an unsustainable and undesirable spending path.

Second, any plan to reduce the growth rate of federal spending on health care without doing something about health care spending as a whole will necessarily shift costs — to the elderly, to the poor, to state governments, and to anybody other than the federal government.

Third, neither party is offering a serious plan to control health care spending as a whole.

Let’s start with President Obama, since his plan is already law. The administration calls it the Patient Protection and Affordable Care Act (PPACA). Other people call it ObamaCare. Whatever you call it, if you are confused about what it means, that’s understandable.

So tired of the straight line, and everywhere you turn
There’s vultures and thieves at your back
The storm keeps on twisting, you keep on building the lies
That you make up for all that you lack

The numbers you see in newspapers are almost always produced by the Congressional Budget Office (CBO), the bean-counting agency of Congress. These forecasts show a dramatic slowing of Medicare spending — about in line with the recommendations of the President’s debt commission and with such independent reform proposals as the one made by Rep. Paul Ryan (R-WI) and former CBO director Alice Rivlin.

If you are elderly or disabled, however, pay attention to a more ominous document — the Medicare Trustees report, released last summer. Unlike the CBO’s pronouncements, this report is an executive branch document that reflects the administration’s view of its own health reform. (Three cabinet secretaries — labor, health and human services, and treasury — are Medicare trustees.)

According to the Medicare Trustees report, ObamaCare will cut the rate of growth of Medicare spending in half and allow it to grow no faster than our national income. The Office of the Medicare Actuaries has released a separate document, explaining what this means:

  • By the end of this decade, the fees Medicare pays to doctors will be lower than what Medicaid pays. Seniors will become less desirable as patients than welfare mothers.
  • Also by the end of the decade, one in seven hospitals will be forced to leave the Medicare system.

In the decades that follow, the consequences continue to get worse and worse through time.

Bottom line: access to care is going to become increasingly difficult for the elderly and the disabled. That problem will be compounded when health reform insures 32 million additional people in just three years, without doing anything to create more doctors.

If all this is news to you, that’s understandable. The Obama administration has done nothing to publicize the Medicare actuaries’ warnings. But it has spent millions of our tax dollars on Andy Griffith television commercials, trying to convince seniors they have gained, not lost, as a result of health reform.

Senior voters were not fooled, however. In the last election, they abandoned Democrats in droves and voted for the GOP. Coming into this year, Republicans were in the catbird’s seat. Whatever Medicare reforms they called for would not be as bad as what the Obama administration had already planned.

Prudence might have dictated a cautious approach for Republicans — remembering the adage never to get between your opponent’s gun and his foot. Instead, a new Paul Ryan plan recently passed by the House of Representatives follows the ObamaCare cuts for the next 10 years and then calls for more severe cuts in the decades that follow.

For Ryan’s plan to have any chance to become reality it must be coupled with two additional items: (1) comprehensive health reform, slowing spending for everybody and (2) a way for people to save tax-free during their working years so they will be less dependent on government during their retirement.

I’ll write more about this in the future.

Comments (36)

Trackback URL | Comments RSS Feed

  1. Devon Herrick says:

    It is baffling that the only group of people that are categorically excluding from having a tax free Health Savings Account is seniors, who have medical needs greater than any other group.

  2. Joe S. says:

    Obama has been lying to us about what is going to happen to seniors.

  3. Statistics are like a lamp post for a drunk…more for support than illumination.

    Here is a simple fact.

    Public sector spending per enrollee (not per capita), has grown at 3 times the rate as private sector spending per enrollee.

    This skews the entire per enrollee spending numbers.

  4. Vicki says:

    Interesting musical pairing. I assume it applies to Obama and not to Ryan.

  5. Ron Bachman says:

    Personalized Medicare

    I realize that Medicare needs substantial reform to its benefit design, financing and fraud removal. There are two changes that could be made by themselves (or as a part of any broader reform) that would have profound impacts.
    (1) The 150 day limit on hospital stays (Part A) needs to be removed, and
    (2) HSA contributions should be allowed for Medicare beneficiaries.

    Let me explain the reason, some cost estimates, and important implications.

    The Reason
    The greatest fear of the elderly is outliving their assets. Hospital Part A exposes beneficiaries to the full cost of any hospitalization beyond 150 days. Medigap plans costing $200-300 per month are mostly purchased on that fear of losing income producing assets to pay for an extended hospital stay.

    Allowing HSAs for Medicare beneficiaries would generate saving from more patient selective utilization of services in much the same way employers are experiencing savings with HSA eligible plans.

    Cost Estimates
    Every Medicare Advantage and Medigap plan covers unlimited hospital days. The cost of the extended coverage for the Medicare Advantage is described by actuaries as “minimal – near zero” due to carrier provide care management provided to patients. In MediGap the costs may be slightly higher (no care management). Several years ago the CMS actuary priced out the extended hospital cost at for all Medicare at ¼ %. I suspect the cost as a percentage of Medicare is lower today.

    Remember, hospitals are paid on a fix DRG basis anyway. The outlier reimbursement payment formula is currently being abused by hospitals submitting bills on a charge master basis rather than a true cost basis. A change in the outlier reimbursement could be used to offset any cost.

    HSAs would generate savings to more than offset any added cost of the Part A expansion.

    According to AHIP at year end 2009, 9.5 million Medicare beneficiaries had purchased Medigap plans. By changing Medicare Part A, those individuals would have $200-300 per month (about $3B in total) that could be put into a tax advantaged HSA, used to buy up a more comprehensive Medicare Advantage option, and/or used to purchase long term care.

    All Medicare beneficiaries would have the fear of extended hospitalizations removed regardless of whether they chose Medicare, Medicare Advantage, or Medigap. With the hospital day change, Medigap plans would prove uncompetitive in the market. Sales of Medigap would diminish dramatically. Medicare Advantage benefits provided by the efficient cost controls and provider access would be highlighted as the best buy in the comparison on the three options.

    Good Politics
    The conventional wisdom is that the Hispanic community is the fastest growing voting block in the country. It is believe that no Republican candidate can win a national election without at least 45% of the Hispanic vote. However, the fastest growing block of voters in the country may be Baby-boomers (78 million: 10k per day) becoming eligible for Medicare. Tea Party members are 40-60% Medicare beneficiaries. This group of voters has moved away from Democrats in large numbers. The message of ObamaCare was that $500B would be removed from Medicare to pay for expanded coverage to young lower income citizens. Republicans have a chance to solidify this voting group by improving Medicare as the program is also being reformed.

    By making these improvements to Medicare, the Republicans can support increased health security, lower costs, promote more private market coverage under Medicare Advantage, and diminish the sale of Medigap plans – the worst health insurance buy on the market.

  6. Simon says:

    It appears the administration is taking a novel approach of widening the health care informational asymmetry between all stakeholders in attempts to achieve a Pareto efficient system…very bold move

  7. George says:

    John, your counsel to not get between your enemy’s foot and gun recalls the filmed words of Michael Corleone (Godfather III): “Power and money are the same thing–power is the gun, money is the trigger.” Maybe a corollary to your rule should be not to get between stakeholders’ money and their guns. Applying both to physicians, looking more and more like a dangerous place to be.

  8. Mandy says:

    Where is the voice of outrage from the Baby Boomers, who are now retiring in droves? Are they all going to sit quietly by while their benefits dwindle away? I’m disappointed in the generation who never hesitated to protest inequality at any level.

  9. Mandy,
    Because the AARP and the AMA stands to make so much money on the baby boomers, they have spoken for you.

  10. Medical costs can only be achieved by rationing care based on medical need (not want) instead of ability to pay (as the current system does)

  11. Linda Gorman says:

    The notion that government should be slowing spending for everyone is dangerous. Government has no idea how much should be spent on health care.

    A better approach would be for government to get its health programs in order and then get out of the way.

    As John Goodman has pointed out many times, health care is just one of a number of other goods. Therefore, there is no reason for government to tell me that I can’t spend any more on health care. If I decide to spend more on health care and less on housing it is none of the government’s business.

    This distinction is especially important given that one would expect to see health care spending increase due to forecast increases in the average population age.

  12. Lowrey,
    Why do you feel that the government should determine how much of my money I “need” to spend on my own health, rather than me?

  13. Diana Furchtgott-Roth says:

    I enjoyed today’s post, John. It is being demagogued by its opponents.

    Here is my Tax Notes column today taking on David Cay Johnston, who attacked Ryan’s budget resolution:


  14. John,

    I tried following Lowery’s link, but it appears to be as invalid as the comment he made about rationing.

  15. Robert Kramer says:

    The only way to reduce health care costs is to provide the medical profession with the knowledge that it is no longer “test and studies on demand” As long as the costs are in free fall, we’ll never have a decrease in the cost of care. The administration does not practice medicine, the legislature does not practice medicine, nor do the insurance or pharmaceutical companies. When you can understand that health care is not a cost controlled system, but a quality controlled system. Only then will you be able to show savings. More to follow.

    -Dr Bob Kramer

  16. Stan Ingman says:


    While I frequently disagree with your logic, I do share your concerns about both proposals not controlling costs. However, I have a little more faith in Democrats than you.


  17. John Goodman says:

    @ Ron Bachman

    Totally agree.

    @ Linda Gorman

    What I meant by “slowing spending for everyone else” is removing the distortions that cause spending to be artificially high.

  18. Hi John, My website is not active. Try lowerythompson@yahoo.com. Always a pleasure to discuss ways to reduce overall healthcare costs to less than 18% of the GDP. Cheers, Lowery

  19. With universal healthcare access based on medical need, everyone would get what they needed. People who desired healthcare interventions which were not considered “medicall necessary” by the universal healthcare system could certainly buy any services they desired on the unsubsidized (no insurance) free market. About 5% of the American people whould be able to purchase everything out of pocket. The rest of us would have to rely on “Medicare for everyone” or some similar federal system for the majority of our care.

  20. John Goodman says:

    Lowery, have you ever stopped to consider that the entire Soviet economy was based on distribution according to need. Remember “from each according to his ability, and to each according to his need.”

    Throw in the Cuban economy and the North Korean economy as well.

    Now, how many needs do you think actually get met in those systems?

  21. Lowery, When I lived in Canada and my wife needed orthopedic surgery, it was considered “elective” surgery, and not medically necessary. People in the government felt that since it was not life threatening, she could wait. Gradually the joint deteriorated to the point where she could not walk. They gave her a walker, and a prescription to Vicodin. By age 45, due to decreased mobility, and near addiction to pain pills, she gained weight, and other health issues followed.
    I know that people like you feel that you can sit in a corner office and decide who is entitled to care and who is not, and it will be a utopian existence, but it does not work.
    You have still not answered the question I asked you yesterday, so I will ask it again, a little more concisely:
    Why is it that you believe that the government should take my money then decide if it is important for my wife to be able to walk or not, better than I can make that decision with my own money? Do you believe that the desire to walk is greedy and selfish?
    OK, so that was 2 questions, but I really do want an answer.

  22. Tom Anderson says:

    Many Americans don’t realize that, living in the US, they have the luxury and freedom to have socialist views within their privte lives, while living in a free market, capitalist society. People who live in Canada, do not have that freedom. It is glaringly apparent the minute one crosses the border into Canada. People have been dis empowered, and the root of this disempowerment lies in one’s inability to walk into a doctor’s office and pay for services upon demand. If Lowery hasn’t ever lived and paid taxes in Canada as a dedicated permanent resident, he should. The very people who are most damaged by socialism are the those it is meant to help. Those who are so over taxed, that they couldn’t leave and pay for medical care if they wanted to. They cannot even afford to consider this option because the knowledge and understanding of their entrappment would surely kill them. For the government to decide what is “elective” and what is not, is an outrageous impediment to one’s God given freedoms. A sin against humanity.

  23. Tom Anderson says:

    Doctors who want socialized health care are really saying that their work is not worth getting paid for, and it should be free. I say, in the US a doc can practice socialized health care by giving away their services. Nothing stopping them from doing that. I get a big picture of some homeless guy walking into his office with dingleberry’s and moss growing all over him, and Lowery saying: thank you for making my dream of practicing socialized health care come true. I will be so happy to give you every bit of knowledge I have paid through the nose for, for free!

    Yeah, Lowery can practice socialized health care for free in the US. Do it, Lowery. I’ll wait for your press release. Ignorance has found a new home in Lowery.

  24. Hi Ralph, If the universal care system does not require a service you desire, you can always purchase it on the free market.

    Hi Tom, I pay $500.00 out of my +pocket each week to see patients with no money or insurance at no cost to them. I work the other 6 days a week to be able to afford this clinic. As I recall Jesus also indicated that from whom much is given, much is expected.

    Hi Everyone, Another option would be to eliminate all health insurance programs, public and private, and let an unsubsidized free market system would provide care to those who could pay cash.

    Healthcare costs must be controlled. The question is how. Kantian ethics suggests that the greatest good for the greatest number is a ideal that should be striven for. This concern about healthcare costs is very important is the American economy is to survive. I have practiced medicine in the private sector since I finished my training in 1981. There are no easy answers. I agree with John that neither the Democrats or Republicans are being honest. It is estimated that 30 to 50 percent of healthcare expenditures do nothing to prolong or improve the qualilty of like. These expenditures are driven by many forces–fear (of litigation), greed, and just trying to pay overhead. My current collections are 40% of chagres: Medicaid pays 8% of charges. Medicare pays 24% of chagred (including patient copayments). My overhead is 24% of charges or 60% of collections. I am acutely aware of the challenges involved in providing care bases on medical need as opposed to abiliity to pay. So far I am still in practice and hope to continue for a while.

    Please help our country survive problem. Cheers, Lowery aka Dr. T aka Hey Doc

  25. Lowrey, in Canada you can not pay a doctor. It’s single payer, and it’s one of only 2 countries in the world where a doctor can not accept payment from a patient for a covered service. That is why I had to leave Canada.
    Overhead and administration for Medicaid and Medicare are far higher than they are for private insurance, but that’s not the biggest issue. The biggest issue is that our entire third party payer system is based on price fixing through a “public-private” partnership between CMS and the AMA. The providers of medical services do not set their own rates, and there is no market correlation between quality and price.
    You still have not answered my question.

  26. Hi Ralph, I am sorry I tried. If you are in Canada you may come to the united states and pay cash and them go back to Canada. Please restate your question and I will try again. Great Britain has a 2 tier system. Public for those who cannot pay or choose not to pay and private for those who want more services, faster service, or more friendly serve. I would welcome your suggestions about cost reduction in the US. Medicare administrative overhead is substantially lower than most private insurere. Medicaid varies from state to state and I have no specific information. Cheers, LLT

  27. Lowrey,
    Medicare admin costs are $522 per enrollee per year, Medicaid admin costs are $642 per enrollee per year, and private insurance admin costs are $468 per enrollee per year. These figures are from the US cencus bureau and the CMS. Please share with me the numbers you have and the source which indicates otherwise.

  28. Lowery,
    Also, after I left Canada and paid $2,800 for a joint replacement, why would I ever go back? I value my freedom, and will never again allow anyone to take my money away through taxation, and then decide how much of my own money he thinks I am entitled to receive back. Totalitarian governments and centralized planning do not work. Universal healthcare does not work, because it is based on a premise which is invalid. It cant be made to work any easier than you can make gravity work in reverse.
    My question was:
    Why is it that you believe that the government should take my money then decide if it is important for my wife to be able to walk or not, better than I can make that decision with my own money? Do you believe that the desire to walk is greedy and selfish?
    OK, so that was 2 questions, but I really do want an answer.

  29. Hi Ralph, You are not greedy or selfish. If you favor a free market system for healthcare without insurance for anyone, that is a rational position and it would control costs.

    I will have to check the data on “Administrative Costs”. My understanding that Medicare ran 5 to 10 percent of total payments while most private insurance companies are in the range of 15 to 40%, but that includes profits and other items not directly related to medicare expenses. I am not fully conversant with all details, but a Medical Cost/Ratio of less than 85% of collections is achieved by many carriers. I will try to find some primary data and get back to you. I certainly respect your opinion. Cheers Lowery

  30. Lowery,
    Your numbers are right and mine are right. Medicare is 5% on admin, private insurance is 12% on admin. HOWEVER, 5% of $12,000 is still higher than 12% of $4,000, so percentages can be deceptive. For example, if you had an option to purchase one of 2 houses, which would you buy? House A costs 90%, house B costs 65%

  31. Hi Ralph, Thanks for clarifying. Now I understand. Cheers, Lowery

  32. I guess this means you are not going to answer my question

  33. Q1. I don’t think that.You should not have to pay any taxes and should be able to buy whatever you can afford.

    q2. I don’t think the desire to walk is greedy or selfish.

  34. Tom Anderson says:

    Lowery, you give away services because you live in a free market, capitalist society, and you have the CHOICE to do so.
    That’s the beauty of this country and the freedoms that so many politicians take away little by littel every day.

    Then, you make everyone else pay a little more, either through insurance or out of their own pockets to pay for the ones you choose to see at no charge.

    You’re not losing anything. You’re exercising the freedom this country allows you to, and under capitalism, you use your money any way you want, and capitalize on the license you have as an MD.

    Insurance companies pay all MD’s the same, no matter the skill level or educational superiority. Only the individual who chooses to pay out of their own pocket to see one doc over another is giving any weight to credentials.

  35. Lowery Thompson, MD, FACP says:

    Hi Tom, You are correct; The patients that pay me directly or through third party payers subsidize the care I provide to the patients who do not pay. My only cost is the opportunity cost of working hours for which I am not paid. Thank you for your thoughtful analysis. Cheers, Lowery

  36. Ron Bachman says:

    If anyone thinks health care is expensive now, wait until it’s FREE!