At the Crossroads: Who Should Bear the Costs of Health Care?

By:  Rebecca Cerio

As the debt ceiling debate consumes the news, Medicare and Medicaid consume more and more political talk time.  The Baby Boomer generation is rapidly aging and beginning to draw on Social Security and Medicare.  Added costs of this growing beneficiary population will be compounded by the rising costs of health care itself, which has outpaced inflation for the past thirty years.  By 2025, the Government Accountability Office has predicted that interest on the national debt and our three biggest entitlement programs (Social Security, Medicare, and Medicaid) will consume ALL federal revenues (1), leaving the US with no choice but to go deeply into debt to provide even the most basic services.

All agree that such a situation is untenable.  Nearly everyone, regardless of political persuasion, can agree that ‘something’ needs to be done about health care.  However, what that ‘something’ is is still under fierce debate.  To ensure the health of our poor and elderly, services have to be provided.  Providers have to be paid.  Where should the money come from?

Two major policy camps have arisen:  1) reduce health care costs or 2) reduce government aid paid to offset those costs.

The first school of thought points to rising prescription drug costs, waste in medical testing, and inefficiency in health management as opportunities to stretch the government dollar by decreasing the cost of needed care.  Pilot programs are currently testing new ideas such as medical homes where patients are cared for in a centrally coordinated manner (2) and accountable care organizations (ACOs) where health providers are rewarded for cost-cutting measures (3).  These programs have shown great promise at reducing health care costs.  However, whether or not such strategies can be scaled up before it is too late–and whether those savings will be enough to make a difference–is still unclear.

The second school of thought is exemplified in such proposals as Sen. Paul Ryan’s “Path to Prosperity” (4).  The Ryan Plan suggests that Medicare should be reformed into a “premium support program”, where instead of providing medical coverage, beneficiaries would receive an annual payment towards buying private health insurance.  Any costs beyond that payment would be the responsibility of the beneficiary, and private health insurance costs are traditionally higher than those paid by Medicare for the same services.  As a result, one analysis has found that under the Ryan Plan a typical 65-year-old would spend twice as much (nearly half their Social Security income) on health care than under the current Medicare system (5).  Additionally, the Ryan Plan would restrict total Medicaid payments, including those paid to many citizens in nursing homes.  Overall, the Ryan Plan would indeed reduce the cost of Medicare to the federal government.  However, that cost would instead be shifted back to the beneficiaries, particularly those with the lowest incomes, greatest needs, and highest medical expenses.

The existence and popularity of programs like Medicare and Medicaid suggest that Americans feel an obligation to care for the elderly, the sick, the disabled, and the poor.  However, the underlying issues are these:  who ultimately bears the responsibility for paying for this care?  How much is the federal government’s responsibility, and who should pick up the rest of the bill?  And finally, how much of a role should the federal government have in reducing medical costs for all payers?  America is currently at a crossroads in this discussion, and the answer to these questions will shape the US budget and national character for decades to come.

(Cross-posted at Science Policy for All)

(1) Concord Coalition primer on long term budget trends.
(2) Robert Wood Johnson Foundation brief on medical homes.
(3) Mark McClellan, Aaron N. McKethan, Julie L. Lewis, Joachim Roski and Elliott S. Fisher.  A National Strategy To Put Accountable Care Into Practice  Health Affairs, 29, no.5 (2010):982-990.
(4) The Ryan Plan (in full)
(5) Ryan Plan Brief (analysis by Kaiser Family Foundation)
(Photo by Shutr – it’s a fitting story behind the photo, too.)

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