Medicare Cost Savings are Cost Transfers to Private Sector Businesses

Posted by PITHOCRATES - June 12th, 2011

Private Health Insurance Costs rising Faster than Medicare Costs

Looking at graphs makes problems easy to see.  They can make you jump to the wrong conclusions, but you can see the problems more clearly.  And the good news is that Medicare doesn’t have any problems.  At least cost-wise.  It’s the free market that does.  Because it operates without the keen and wise oversight of government.  As a result they can charge whatever they want for their insurance.  Well, the government doesn’t allow this in Medicare.  Therefore, the government way is the better way.  Just look at the graphs (see It’s the Health Care Costs, Stupid by Paul Krugman posted 6/12/2011 on The New York Times).

The larger point is that we don’t have a Medicare problem, we have a health care cost problem. And Medicare actually does a better job of controlling costs than private insurers — not remotely good enough, but better…

If Medicare costs had risen as fast as private insurance premiums, it would cost around 40 percent more than it does. If private insurers had done as well as Medicare at controlling costs, insurance would be a lot cheaper.

But graphs can be misleading.  Looking at them does support everything he says.  However, the graphs don’t explain why.  And if you want to know the ‘why’ talk to a doctor.  Ask about his or her Medicare billings.  You won’t hear a happy story.  The government keeps cutting the amount they will pay.  Because they can.  And every year further ‘automatic’ cuts have to be postponed by Congressional action.  Which usually happens.  Because these future cuts are so steep that, if enacted, will make a lot of doctors stop seeing Medicare patients.

But if the government isn’t paying doctors fairly, how can they stay in business?  Isn’t the fact that they are staying in business prove that the government-determined prices are fair?  No.  Costs are costs.  Those unpaid by the government still have to be paid.  And guess by who?  That’s right.  Private insurance.  That’s one reason why private insurance costs are so high.  They’re picking up the unpaid Medicare costs.  And unpaid Medicaid costs.  And a large part of costs incurred by people using the emergency room in lieu of buying health insurance.  Through inflated billings to private insurance companies.  Because costs are costs.  And someone has to pay them.

Of course, it’s the people who pay for private insurance who end up paying.  And because health insurance is an employee benefit, the employers ultimately pay.  Businesses.  And the more unpaid Medicare costs are passed on to businesses, the higher their health insurance premiums get.  Forcing them to make cuts elsewhere.  Make the employee share in part of the costs.  Or they simply quit providing health insurance.  So these remarkable cost savings the government achieves are nothing more than an additional Medicare tax.  That private sector businesses pay.

And when businesses have to pay more for unpaid Medicare benefits, they have less to pay their employees.  Or simply can’t afford to hire more people.  Which means a net reduction in consumer spending.  Either through lower wages.  Or less job creation.  So the more the government ‘saves’ on Medicare, the less economic activity there will be.  And possibly the less Medicare there will be (if further cuts make doctors drop out of the system).

So, yes, the graphs are accurate.  But they don’t tell the whole story.  They show a smaller rise in Medicare costs than private insurance costs.  But it’s just smoke and mirrors.  Misdirection.  A magician’s trick to make us look one way.  So we don’t see what’s really happening elsewhere.

Health Care Costs are Rising in the Military, Too

About 60% of government spending covers Social Security, Medicare/Medicaid and defense.  Each at approximately 20%.  We continue to spend more and more on Social Security and Medicare/Medicaid.  And yet these programs are projected to go bankrupt.  Defense spending has gone up, too.  But it is the only one of the three programs that ever sees any real cuts.

The U.S. population is a little over 300,000,000.  And about 40% of the federal budget covers the elderly (approximately) of that 300 billion.  About 13% of the U.S. population.  Or about 39 million people.  It’s this 39 million that is bankrupting America with their Social Security and Medicare benefits.  Those who passed Obamacare want universal single-payer health care for all 300,000,000 people.  You don’t need a higher degree in math to see that adding some 260 million more to the 39 million is going to make a bad financial situation worse.

Meanwhile the U.S. military has approximately a million and a half people on active duty and another million and a half in the reserves.  In addition to this 3 million there are about another 2 million in retirement (850,000 who are collecting a pension).  So that’s about 5 million (approximately) in our military health care and retirement programs.  These numbers are very approximate.  But the order of magnitude is accurate.  And telling.  Because even though 5 million people are a whole lot fewer than 39 million people, the health care and retirement costs in the military are unsustainable (see Panetta: Military healthcare costs are on my radar by John T. Bennett posted 6/12/2011 on The Hill).

The Obama administration is proposing increasing TRICARE fees for retirees of working age, which have remained the same for a decade. Specifically, the proposal would raise premiums for family plans by $5 per month, and by $2.50 for individuals…

“Even with the estimated savings from the healthcare efficiencies proposed in the … 2012 budget, the cost of the Military Health System continues to increase as a percentage of the DOD budget and will exceed 10 percent of the budget in just a few years,” Panetta told the committee…

“Part of this is understanding where the money is,” Mullen said. “Two of the big places the money is is [sic] in healthcare, and it’s in pay and benefits.”

First you increase the beneficiaries’ cost.  And when that no longer works you start the rationing.  The ultimate result of any single-payer system.  Just like in the UK.  Where one of the goals of their ongoing NHS reform debates is cutting wait times.  Because with the high costs of their single-payer system, people have to wait a long time for some medical tests or procedures.  Because their costs prevent them having a lot of these tests or procedures available to the UK citizenry.

Destroying the Private Health Insurance Market

Social Security and Medicare Light (military health care and retirement) isn’t working with only some 5 million people in the system.  Regular Social Security and Medicare isn’t working with only some 39 million people in the system.  And expanding Medicare-like health care to another 260 million people probably isn’t going to help.  Unless your goal is to destroy the private health insurance market.  Which will happen.  Because private insurance (i.e., businesses) simply cannot afford to pick up the unpaid medical costs of another 260 million people.

And once you’ve destroyed the private health insurance market, all those unpaid Medicare costs (and the new unpaid Obamacare costs) will have to be transferred somewhere else.  To the taxpayer.  Both businesses.  And consumers.  Which will further reduce consumer spending.  Which will reduce economic activity.  Despite all the promises of a single-payer system.  Because costs are costs.  And someone has to pay them.

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