Paul Krugman is Half Right On Medicare

Republicans are promoting a plan which would destroy Medicare, claiming that Medicare cannot survive in its present form. Paul Krugman argues that Medicare is sustainable:

I keep seeing people say that Medicare in its current form is not sustainable, as if that were an established fact. It’s anything but.What is Medicare? It’s single-payer coverage for the elderly. Other countries have single-payer systems that are much cheaper than ours — and also much cheaper than private insurance in America. So there’s nothing about the form that makes Medicare unsustainable, unless you think that health care itself is unsustainable.

What is true is that the U.S. Medicare is expensive compared with, say, Canadian Medicare (yes, that’s what they call their system) or the French health care system (which is complicated, but largely single-payer in its essentials); that’s because Medicare American-style is very open-ended, reluctant to say no to paying for medically dubious procedures, and also fails to make use of its pricing power over drugs and other items.

So Medicare will have to start saying no; it will have to provide incentives to move away from fee for service, and so on and so forth. But such changes would not mean a fundamental change in the way Medicare works.

Of course, what the people who say things like “Medicare is unsustainable” usually mean is that it must be privatized, converted into a voucher system, whatever. The thing is, none of those changes would make the system more efficient — on the contrary.

So this business about Medicare in its present form being unsustainable sounds wise but is actually a stupid slogan. The solution to the future of Medicare is Medicare — smarter, less open-ended, but recognizably the same program.

Krugman is right that Medicare is sustainable. Changes will be necessary to account for demographic  changes in an aging society, and to account for increasingly expensive technology. He is wrong in concentrating on fee for service as the main problem. After all, the current fee for service Medicare system is far more cost effective than private insurance is. Krugman is also wrong  in saying that eliminating fee for service “would not mean a fundamental change in the way Medicare works.”

Private insurance tried to eliminate fee for service. The HMO era was a disaster, trying to save money by giving incentives not to provide medical care. Those who have gone through this in the past while working are unlikely to see this as desirable for their future years when they qualify for Medicare.

Adjustments certainly need to be made to Medicare, including adjustments to what services are  paid for and how they are paid under a fee for service system. Some modifications which are currently being experimented with may also be of value, such as partially paying based upon performance or for providing the services of a Medical Home, might turn out to be worthwhile modifications. However, any successful system which provides for the needs and desires of individual patients will need to include a strong fee for service component.

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5 Comments

  1. 1
    david freeman says:

    1st, a typo, please notice that first two paragraphs are repeated.

    Good post. However, I do wonder if we should better analize why HMOs failed. I loved the HMO I was in in RI but it eventually failed financially. Perhaps a non-profit HMO model could work better. Maybe the HMO model could be tweeked.

  2. 2
    Ron Chusid says:

    The major problem with HMO’s was that they provided motivation to deny care. Tweaking a bad system is not sufficient.

  3. 3
    John Sonntag says:

    RT @ronchusid: Paul Krugman is Half Right On Medicare #p2 #p21 #topprog http://t.co/IgBqGCx

  4. 4
    John Eley says:

    If it is the case that the major problem with Medicare is that it costing the nation too much now and will be ruinous in the long run, then a return to an HMO approach seems the way to go. Unless Seniors such as myself decide to cut our own demand for health care services, which would require a massive change of heart (not massive care for hearts) someone else is going to have to do it for the nation. Who can do it better than HMO like organizations whose major goal is to balance costs and revenues? Thus we need the Ryan plan augmented by the creation of companies in his exchanges whose primary goal is to cut costs by reducing levels of coverage. Why should we not adopt this goal given the adverse impact of continuing to take money away from other national needs to provide services to seniors such as myself whose productive time has passed. What right do we have to demand the existing level of medical care when more productive citizens and the young could use it a lot more profitably for the society as a whole.

  5. 5
    Ron Chusid says:

    HMO’s were a failed experiment. HMO’s turned out to be a poor way to save money. They were often overly restrictive to attempt to increase profits, and often their added bureaucracy cost more than the money they saved. The current Medicare Advantage plans cost about 12-15 percent more to care for people than it costs in traditional Medicare.

    The government Medicare plan has shown itself to be the most efficient and least expensive manner attempted to provide health care to seniors and the disabled, while market based attempts to do this have been failures. Conservatives who argue for a market-based approach in this case are arguing out of blind adherence to ideology. If we approach this from a pragmatic rather than ideological standpoint. HMO’s would be a terrible model to apply to this problem.

    We do have the resources to provide seniors the medical coverage which they have paid for throughout their working lives.

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