Friday, May 27, 2011

Medicare, Mediscare, and the reality of the future of administrative medical care

Did the Democrats win the special election for Congress this past week because of a fear of what the Republicans might do to Medicare? Paul Krugman thinks so, and he very well might be correct. However, there is something that Krugman does not want to admit, and that is the simple fact that Medicare as we have known it is not sustainable, and not even if we raise taxes on upper-income Americans.

(Krugman, you know, always claims that if we can just "tax the rich," that most federal budget problems will be solved. In other words, if we raise the top tax rate from 35 percent to 39.6 percent, the fiscal planets will align and prosperity will return. I'm not sure how his causality chain works for this blissful scenario, but there it is.)

First, Krugman rightly points out that the Republican plans would cut Medicare, and I am in full agreement with him that this would be the case. However, while I don't agree with the Republicans on what might happen if their plan is enacted, nonetheless I believe that Medicare is going down, anyway, and all of the rhetoric from Krugman cannot change the simple fact that the American economy cannot produce enough to keep ALL of the current programs, from military spending to transfer payments, going at their current rate.

Krugman writes:
The new program might still be called Medicare — hey, we could replace government coverage of major expenses with an allowance of two free aspirins a day, and still call it “Medicare” — but it wouldn’t be the same program. And if the cost estimates of the Congressional Budget Office are at all right, the inadequate size of the vouchers — which by 2030 would cover only about a third of seniors’ health costs — would leave many if not most older Americans unable to afford essential care.

If anyone is lying here, it’s Mr. Ryan himself, who has claimed that his plan would give seniors the same kind of coverage that members of Congress receive — an assertion that is completely false.

And, by the way, the claim that the plan would keep Medicare as we know it intact for Americans currently 55 or older is highly dubious. True, that’s what the plan promises, but if you think about the political dynamics that would emerge once Americans born a year or two too late realize how much better a deal slightly older Americans are getting, you realize that this is a promise unlikely to be fulfilled.
Now, I hate to tell this to Krugman, but Medicare already has been cutting its payments to doctors, and many of them tell me that what Medicare pays is well below their own costs.

Thus, the "cuts" in Medicare have been going on for a while, but no politician is going to admit as such, and neither is Krugman.

Second, Krugman is disingeneous about the Democrats' own plans for cost-cutting. He writes:
Still, are Democrats doing a bad thing by telling the truth about the Ryan plan? “If you demagogue entitlement reform,” says Mr. Ryan, “you’re hastening a debt crisis; you’re bringing about Medicare’s collapse.” Maybe he should have a word with his colleagues who greeted the modest, realistic cost control efforts in the Affordable Care Act with cries of “death panels.”
Hmmm. I believe it was Krugman himself who used the term "death panels," and was quite enthusiastic about the term. Only when his comments went viral did he change his tune.

Still, for all of the political rhetoric out there, we have to face the fact that unless the U.S. economy produces more and becomes one in which firms can pursue profits in a market setting (not profits like they get at Archer-Daniels-Midland courtesy of American taxpayers), this welfare-warfare state is in for a very rude awakening.

Americans have not faced the hard fact that this economy with government burdens cannot be sustained. One can understand when politicians or English professors claim that the only problem is that there is a lack of taxation and spending, but when academic economists -- and especially academic economists representing the most elite institutions of higher education -- want to continue the fiction that all it will take is an injection of borrowed money to bring back prosperity, something is wrong in the profession.

In a recent article on the Great Society and the programs it spawned, Robert Higgs notes:
Galbraithianism, Marxism, and other varieties of critical socioeconomic analysis also helped to justify the displacement of antiwar and pro-civil-rights enthusiasms onto a diverse set of antimarket causes, giving rise to heightened support for environmental, consumer, and zero-risk regulations. No perceived social or economic problem seemed out of bounds in this cacophonous new political environment.
Indeed, the reality is that this cannot continue, and Higgs warns:
Almost everyone now acknowledges that federal entitlement programs, crowned by the enormously costly healthcare systems the Great Society spawned, have promised much greater benefits than the government can fund, and hence that many of these benefits will have to be cut, notwithstanding the political fury such cuts surely will elicit. This impending sociopolitical tumult represents one of the Great Society's bitterest fruits.


Anonymous said...

"Now, I hate to tell this to Krugman, but Medicare already has been cutting its payments to doctors, and many of them tell me that what Medicare pays is well below their own costs."

Professor Anderson, I am inclined to believe you, but as astrophysicist Neil deGrasse Tyson says, "Eyewitness testimony is the highest form of evidence in law, but the lowest form of evidence in scholarly analysis."

We need specific sourced quotes from specific doctors.

ayassos said...

You've hit the nail on the head that Krugman believes that all the American economy, and Medicare, need is a further injection of borrowed money to set things straight. And when that money is spent (as the Stimulus was spent), he will say that the injection was insufficient or that we need another dose. What he doesn't seem to say is that there is something fundamentally, structurally wrong with the American economy and its inability to produce good, well-paid jobs that would provide the tax base for govt. entitlement programs. Krugman's complete lack of realism about the American economy is one of the very frustrating things about trying to read him. He seems to think that with the same fiscal tools at hand, Democrats would succeed where Republicans would fail, and there is simply no evidence for that. It should be changed from "New Keynesianism" to "Mad Keynesianism."