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David Brooks on Drugs and Medicare

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Tuesday, 09 October 2012 04:51

While we may not know whether David Brooks' try out as a Romney speechwriter was successful, he clearly is doing his best for the campaign. Today he pushes the idea that a voucher system is the only way to contain Medicare costs. This requires ignoring an awful lot of evidence, but that is an exercise at which David Brooks excels.

To start, in dismissing the idea that governments can be successful in designing policies that contain costs, Brooks ignores all the evidence from every other wealthy country. All of them have much greater involvement of the government in their health care system (in some countries like the United Kingdom and Denmark they actually run the system) yet their average cost per person is less than half as much as in the United States. And they have comparable health care outcomes, with all enjoying longer life expectancies. If health care costs in the United States were comparable to those in any other wealthy country we would be looking at long-term budget surpluses, not deficits. (We could look to trade to reduce costs, but policy debates in the United States are dominated by ardent protectionists in the area of health care.)

Of course relying on the private sector to contain costs in Medicare is not a new idea, contrary to what Brooks seems to believe. The Gingrich Congress' Medicare Plus Choice plan opened Medicare to private insurers as did President Bush's Medicare Advantage plan. Both raised costs. We also have the massive under 65 market which is overwhelmingly served by private insurers. Yet per person costs have consistently risen more rapidly for the non-Medicare population (Table 16) than for the Medicare population. This is in addition to the fact that the administrative costs as a share of expenses for Medicare are less than half of the costs for private insurers (this is even after adjusting for the higher denominator with the expenses of Medicare patients).  

Brooks seems to think it would be a great idea for providers to be paid by the patient rather than for the specific services provided. That may prove to be a very good idea and the Affordable Care Act actually puts in place a number of incentives to push providers into going this path. Most private insurers do not now follow this route in spite of Brooks' positive assessment of this approach. But Brooks still links this method of payment with private insurers.

In effect Brooks is arguing that if pointy headed government bureaucrats in Washington force private insurers to change the way that they provide benefits, then it will lead to lower costs than if we just left the market to itself. Brooks faith in the effectiveness of government intervention is impressive.

Interestingly, Brooks gives the voucher structure of the Medicare drug benefit credit for containing the costs of the program and holds it up as a model for Medicare more generally. In fact, the main reason that costs have been contained is that drug prices in general have risen much less rapidly than had been projected. In 2004, the Center for Medicare and Medicaid Services projected (Table 2) that we would be spending $440 billion in 2012 for prescription drugs. Instead we are now expected to spend $277.1 billion.

The slower growth in costs was in turn attributable to a slower pace of innovation in the drug industry. The Food and Drug Administration data put the number of breakthrough drugs developed in recent years at less than half the late 90s rate.(A priority approval means that a drug is seen as presented a qualitative advancement over existing drugs.) Perhaps Brooks wants to attribute the slowdown in innovation to the voucher system in the Medicare drug benefit.

annual-FDA-drug-approvals-08-2012

Source: FDA and Knowledge Ecology International.

Finally, the Romney-Ryan plan does contain an important potential contradiction in both setting up a strict limit on the rate of benefit cost growth and the commitment to guarantee a payment that is large enough to allow beneficiaries to buy a Medicare equivalent policy. If it turns out to be the case that even with the Romney-Ryan voucher system in place costs outpace the cost growth target, we don't know which will take precedence, the restriction on cost growth or the commitment to ensuring seniors that the government will pay for a Medicare equivalent policy.

In this way, the Romney-Ryan promise on Medicare is similar to the promise on their tax plan. They claim that they will not raise taxes on the middle class and still have a revenue neutral tax plan. As many independent analysts have pointed out, this story does not add up. Either they will have to not carry through on the tax plan that is at the center of their campaign, they will have to raise taxes on the middle class, or they will increase the deficit. Similarly, their plan for Medicare almost certainly means that they will either have to back away from their commitment to guaranteeing that seniors will be able to afford a Medicare equivalent policy or they are not really committed to the budget targets they have set out for Medicare.

Comments (16)Add Comment
Romney now claims he'll cut taxes for the middle class
written by Robert Salzberg, October 09, 2012 7:58
During last week's debate, Romney went beyond revenue neutral to a claim that he'd cut taxes for the middle class.

From transcript:

21:16:44: ROMNEY:
...And number three, I will not under any circumstances raise taxes on middle-income families. I will lower taxes on middle-income families.

Of course, Romney may claim later that he's just lowering rates not taxes but that's not what he said in the debate.
...
written by foosion, October 09, 2012 8:46
For a good recent example of the relation between Republican statements on taxes and policy on taxes, see George W. Bush.

Millions see debates, thousands are aware of facts.
mythical payment reductions...ain't gonna happen
written by pete, October 09, 2012 9:55
Easiest way to see how consumers with choice and skin in the game can affect costs is to look at non covered medical procedures. For example, cosmetic surgery, dental care, laser eye surgery, to name a few. Here the provision has become very efficient, costs have fallen relative to other health care. Even copays are effective, my son recently declined to go to the doctor because he didn't want to pay $30. On the other hand, promises to pay less for procedures have been broken time and again. Why should this be expected to change?

Dean wants nurses and doctors to be paid on a global scale. Absolutely. Unfortunately the SEIU and AMA restrict entry, mandate excessive nurse coverage, and visas have been horribly restricted. Last I heard there was quite a waiting list to have British and French doctors immigrate here. The response in TX is for more physicians assistants...kind of a third best solution.

Anyway there is plenty of room on the supply side (more visas and less monopolistic labor supply) and the demand side (more high deductible plans).
Why doesnt Medicare offer private services?
written by Gladwyn d'Souza, October 09, 2012 10:52
Why doesnt Medicare offer private services? On our employer's health insurance form we should be able to choose between our PPO, Kaiser. or Medicare. With half the cost of private insurers Medicare would make sense for small businesses.
Payment reductions.
written by jjmsan, October 09, 2012 10:56
I have no idea what the costs of cosmetic care are, but I can tell you the costs for dental care have not come down. Furthermore, in non covered cases of dental care you have the option of many providers. This is not the case with medical care.
jjmsan...keyword is relative to other medical care.
written by pete, October 09, 2012 11:00
of course all costs rise over time....but some not much more than CPI
and of course...dental insurance is kind of silly anyway
written by pete, October 09, 2012 11:50
"Insurance" should be for the unexpected. Car insurance does not cover oil changes. It could, but why would we pay the little gecko 10-20% of our oil change cost to have him cover it. Same with dental. Regular cleanings, xrays and so forth are not insurable events like crowns. Yet we pay dental insurance companies a premium to cover these. Same with contraception. Why pay a 20% premium to an insurance company for something which is not risky? Just pisses some people off, and raises the costs by 20%.
private services?
written by David, October 09, 2012 11:58
Gladwyn, I thought that's what Medicare Advantage was about, except they privatized the customer interface, which as stated above, ends up driving up costs. I seem to recall the insurance companies didn't want to compete with Medicare directly (in a free market, competition should be welcomed, no?).
Republicancare
written by FoonTheElder, October 09, 2012 12:02
Romney's Republican care is the same old failed health care system that wastes $1 trillion per year compared to every other developed country. All they want to do is to change a few deck chairs on the health care Titanic.

The reality is that there are big corporations and wealthy people who make big money off of this price gouging system. Romney, Ryan, Republicans and Republicrats are being paid very well to keep the money flowing to these price gougers.

Republicancare means we stay 100 years behind the times in health care instead of only 50 years under Obamacare.
...
written by skeptonomist, October 09, 2012 12:19
Having "skin in the game" does not enable a layperson to decide what medical treatments are necessary; that is something that requires specialized knowledge. Decisions are also not best made by people who make money from additional treatments. This is why a central authority, whether it is under a private insurance company or Medicare, must make rules about what treatments should be used. The expert panels who do this are necessary under any system, whether they are called "death panels" or not.
Special Interests
written by Donald Pretari, October 09, 2012 12:27
Brooks is advancing the view's of Special Interests. There are a number of ways we could alleviate this problem if we confined ourselves to the evidence provided by the real world. Neither Political Party has any interest in such an approach. We're just serving different masters or balancing them differently.
more medical immigration
written by Ethan, October 09, 2012 2:33
My wife is a nurse with several special certifications (now retired). About 20 or 30 years ago there began an increased immigration of nurses, particularly from the Philippine Islands. At the time we all thought this was to lower costs for hospitals and doctors who had to pay nurses. I never saw any discussion of how they got visas/work permits or any study of the cost effects of this surge. Anybody know what was actually happening? Could it be done again? or is the AMA that much stronger than any other lobby.
...
written by Kat, October 09, 2012 2:40
Pete,
What role does the SEIU play in restricting entry in the nursing profession? And what is this "excessive nurse coverage" mandate of which you speak?
...
written by Dave, October 09, 2012 6:18
Did Mr. Brooks consider the time value of money in his outline of payments Vs payouts? If so, at what rate?
private vs government
written by mel in oregon, October 09, 2012 6:30
the government is always more efficient than private enterprise. there is this great myth that continues to be put forth in the media, schools, corporations, churches & the military about the great hard work & ingenuity of americans as opposed to other nations. it's all malarkey & brainwashing. we have the poorest healthcare of any first world nation. it costs the most, isn't efficient, & our life expectancy is several years shorter than countries where the government runs healthcare. you can't have efficiency with many executives making bloated salaries & bonuses. when you run a for profit healthcare, or educational system it will always be very poor. brooks is a great believer in moving money from the people that have earned it to the leisure class who make their money by moving markets around & buying attorneys & accountants to perform the best three card monte money can buy. & the american people continue to fall for it electing one con artist after another, & then becoming enraged at the same result each time.
skepto has not been to the doctor...
written by pete, October 10, 2012 10:41
"This is why a central authority, whether it is under a private insurance company or Medicare, must make rules about what treatments should be used."

Your error here is the use of the word "should".

Unfortunately i have been too involved with docs lately...but it goes with the territory. In each instant we negotiate...a doctor tells you several options...insurance will cover some things, not others...you take some time to think about it...google it...see what others have done and are thinking...then you make a decision...

Example...hip surgery. There are rules when insurance will cover this. But it is not at all a "necessary" operation...merely allows one to walk easier. Plenty of people can't walk at all. There are wheel chairs. The operation is dangerous, since you are knocked out for several hours. You can clot. The recovery is several months. There is the risk of infection. These are all things to be considered by the patient who is the ultimate decider.

Thus there are allowable treatments, not recommendations. Insurance companies are not doctors or patients, they do not make recommendations.

Now there are interesting conditional treatments. For example, CT scans can spot cancers. If a CT or other test says you have cancer and you decide not to do chemo (oops another patient choice), your insurance will not pay for more CT scans...what's the point.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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