by David Safier
Here's something I honestly don't know the answer to. People say Medicare is heading into massive debt, and I believe that's true over the long haul. But my question is: does that means it's spending too much, or it's underfunded?
Here's how I want to pose the question.
Let's say we take the actual money expended on Medicare in 2008, including money spent on health care, administration, etc. — every penny — and divide it by the number of people served by Medicare that year. That would give us the cost per person.
Then let's try and figure out how much a health insurance company would charge to insure that same person. Remember, s/he is over 65, undoubtedly has multiple preexisting conditions, is likely to require medical care — possibly costly medical care — on a semi-regular basis, and will need expensive end-of-life care some time in the foreseeable future. If we could find an insurance company that would cover that person, how much would it cost? (In today's environment, this is probably a hypothetical question since that person couldn't get coverage, but maybe we could extrapolate from the amount seniors pay for supplemental coverage.)
Then let's compare the Medicare figure for a person over 65 with the hypothetical private insurance figure. If Medicare costs less, then it's a more cost effective way to cover our seniors than private insurance. So if, relatively speaking, it's a bargain and it's going in the red, that means we need to find a way to put more funds into Medicare, because our only other choice is the unthinkable option of sending seniors out into the health care cold and letting them fend for themselves.
Carrying the thought further, if Medicare is a bargain relative to what private insurance would cost, it would probably also be a bargain if similar coverage were offered to people under 65. Meaning, a public option modeled after Medicare, or even an expansion of Medicare to cover people under 65, would be more cost effective than our current private insurance options.
Is my reasoning sound, or am I missing something?
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Brice – Again, why do countries with equitable standards of living pay a lot less for their health care systems which have much more government involvement.
Also, in economics I believe it has been understood for quite a while that health care costs do not respond to competition in the way you think they could because, for one reason, the things that are most costly are not issues that people can ‘shop around’ and get the best deals on.
Matthew Chapter 25 verses 8&9:
“And the foolish said unto the wise,Give us your oil;for ouyr lamps have gone out.”
“But the wise answered,saying , NOT SO; lest there be not enough for usand you:but you go ye rather to them that sell, and buy for yourselves.”
I nobama180 have spoken.
I find that a sample of 43,000,000 individuals is FAR more statistically significant than one anecdote.
Am I saying that it’s not true? No, it’s possible. But it’s ONE guy. Pretty difficult to draw any kind of conclusion based on that, particularly when it so outside of the norm.
I check at an advocacy site for health care reform (nchc.org), and they estimate that health insurance costs for the average family of 4 is $13,000 per year. Or $3250 per person. Interestingly enough, that is almost exactly what governments pay per person in socialized medicine.
I still submit that health insurance ITSELF is the problem. I won’t explain all over again, but we don’t give a crap how much health care costs, because we don’t pay for it. This eliminates any need for competition.
I read some article the other day from a guy who was 38 and worked for a local government, went to see a doctor every other year for some allergy stuff but never for anything else, blah, blah, blah. He was getting loaned to another agency for some work and to do so the municipality had to figure out what his true pay was, and it ended up they were paying $12,000/year to insure this healthy 38 year old.
Now Brice says that Medicare pays an average of 9 grand or so per year for the very sickest population in the U.S. I didn’t fact check any of his stats, but if true, it sounds like we could insure everyone in the U.S. for a lot less in GDP than we are doing now.
Brice asks, “How is it possible that 200 million (taking the 46 million uninsured # at face value) manage to spend the same amount as the government insuring FAR more people?”.
That’s easy—What people spend on insurance is not what they spend on healthcare!
My question is more general. The U.S. has a huge per capita GDP. We spend 16% of it on healthcare while other OECD countries spend more like half that and get better results. Why do we need to increase spending on healthcare? Seems like the expenditure is large enough but it’s going to the wrong places.
David,
Medicare expenditures for FY2007 was $426,000,000,000.00 (426 billion). There were approximately 43,000,000 (43 million) people enrolled. That is an average cost of $9906.98 per person.
To put that in perspective, there are ~138 million taxpayers in the United States. That means that, on average, Medicare cost EACH taxpayer $3086.96. Now, that’s ONLY covering ~14% of the US population. The United States (as a whole) spends ~$2.2 trillion dollars on health care each year. Approximately 50% of that, or $1.1 trillion, is spent by the government. The Fed. Gov. takes care of health insurance for lets say 20% of the population (including Tri-Care, etc), yet spends 50% of the money. How is it possible that 200 million (taking the 46 million uninsured # at face value) manage to spend the same amount as the government insuring FAR more people?
But I digress. Let’s brainstorm for a moment. We currently spend ~$10,000 per person for medicare. Now, these are mostly already sick or elderly. So, lets cut it down 1/3, or to $3333.00. Arbitrary, but close to the UK’s numbers. Since we have a population of about 305,000,000; we would spend approximately $1,016,565,000,000.00 (over 1 Trillion dollars). So, let’s go back to those 138 million taxpayers. That means they will each have to pay (on average) $7366.41, this nearly doubles the current cost to taxpayers for Medicare alone. To put THAT in perspective, the IRS collected 1.36 trillion in taxes from those 138 million taxpayers in 2007, IN TOTAL. So, a UK style (in cost) health care system would eat up nearly 100% of current individual tax remittals.
Since I can’t see it costing any less per person, here in the U.S, it is dang near impossible to pay for, without at least doubling the current amount of tax you pay. And, we all can agree that the government is almost always grossly inefficient, so to assume it would cost MUCH more per capita is pretty safe.
I know this didn’t ‘really’ answer your question, but I’m trying to show the scale of this.
The problem is the rate of growth in health care costs. These eventually have to be slowed or Medicare is not really sustainable. I recently came across a nice interactive graph which allowed you to see what the Medicare cost would be if it grew at the rate of other countries costs. Of course, I can’t find it now, but basically if the rate of increase was lowered it would be possible to sustain.
Anyway, I don’t think it is about stopping care for people to save costs but removing excess costs, like the current 30% or so overhead in private health insurance, and also keeping costs down through large scale bargaining – how most countries negotiate for drug prices, for instance.