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Home Publications Blogs CEPR Blog Medicare Vouchers: Ryan Versus Baker

Medicare Vouchers: Ryan Versus Baker

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Written by Dean Baker   
Tuesday, 05 April 2011 21:12

Since Representative Ryan is running around pushing his Medicare vouchers I might as well take the opportunity to push my own. It seems that Mr. Ryan and I have something in common, we both like Medicare vouchers.

Of course there are big differences between our systems. Ryan's voucher system would deny seniors the option to stay in the existing Medicare system. It would give them a lump sum which they could then apply towards the cost of an insurance premium. There is no guarantee that either the insurance they bought would be as good as Medicare, nor that the voucher would cover the full cost of the insurance.

By contrast, the Baker voucher leaves the current Medicare system intact, seniors would always have the option to be in the Medicare system just as they do today. The change created by the Baker voucher is that seniors would also be able to buy into the health care systems of any of the countries with longer life expectancies than the United States.

The big advantage to seniors is that they would be able to pocket half of the savings. The government gets the other half. Because our health care system is so inefficient, this is big money.

The cost to the government per beneficiary is projected to be nearly $13,000 (in 2008 dollars) by 2020. The average cost of treating a person over age 65 in the countries with longer life expectancy is projected $9,600 (also in 2008 dollars). If we allow the receiving country a 10 percent premium (this ensures that they share in the savings) and split the difference, the value of the voucher would be $11,300, allowing the federal government to save $1,700 for every beneficiary that took advantage of the voucher.

The gains to seniors will depend on which country they chose. Since they also would have substantial out of pocket medical expenses if they stayed in the United States (including their Medicare premiums) their savings from moving to another country to get care would be considerably larger than just the difference between the value of the premium and cost of care in the receiving country.

Seniors that moved to Canada would be able to pocket $5,600 a year. Those that moved to Spain could pocket $10.900, and those that went to New Zealand could pocket $11,200. These numbers get much larger through time. By 2045, the annual savings to a senior moving to Canada, Spain, and New Zealand would be $22,600, $26,700 and $29,400, respectively. This would more than double the income of many retirees. The savings to the government would rise accordingly.

The deal gets even better for people who qualify for both Medicare and Medicaid. For these people, the government would just split the savings, handing half to the beneficiary and pocketing the other half. This deal would allow dual beneficiaries going to Canada, Spain, and New Zealand in 2020 to pocket $13,500, $18,700, and $18,900, respectively in 2020. By 2045, the annual savings for seniors going to these countries would rise to $37,800, $41,700 and $41,900, respectively.

That's the Baker proposal. It doesn't require setting up a complex new domestic voucher system. It just requires some negotiations that would allow our retirees to buy into foreign health care systems. Hey, even a trade negotiator should be able to do that.

The big difference is that the Baker proposal is likely to take some money out of the hides of the domestic health care industry, while ensuring that seniors continue to get quality care. By contrast, Representative Ryan's plan takes money out of the hides of retirees while protecting the incomes of the health care industry. It's a matter of priorities.

Comments (1)Add Comment
...
written by JBG, April 06, 2011 4:05
Glad to finally see a full description of your idea for letting seniors utilize the health care systems of other countries.

It has rhetorical value, emphasizing how inefficient our own health care system is.

But it has little practical value. The amount a senior could save is approximately proportional to how much it could cost them to regularly see their grandchildren. That's on top of requiring complete abandonment of roots and adjustment to a new cultural environment.

Far more practical and straightforward would be to simply get rid of our ridiculous barriers to entry into the health care field. What possibly justifies forbidding one adult to purchase health care from another adult? Because the purchaser might injure himself by making a mistake? That's a reason to forbid anyone to drive a car.

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