Government

Who's On The Hook For Skyrocketing Health Costs?

When health-care costs skyrocket, who should be on the hook?

The way it works now, the federal government shoulders much of the burden — particularly for the elderly, who are covered through Medicare.

As a result, government spending on health care is going through the roof. Rapidly rising health-care costs are expected to be the biggest driver of growing deficits in the coming years.

Rep. Paul Ryan wants to change that. In the big budget plan he proposed yesterday, the government would pick up the Medicare tab at current rates.

But if health-care costs keep rising faster than inflation, the burden would shift from the government to the elderly.

So your thoughts on Ryan's Medicare plan may come down to how you feel about this question: Who should be on the hook, the government, or the elderly?

There is, of course, a second — much more difficult — question to pose here: Is there some way to slow the rise of health-care costs, so no one has to be on the hook?

Ryan argues that his plan would slow the rise.

In the current system, the elderly are covered by Medicare, which is run by the government. In Ryan's proposal, the elderly would shop around for private insurance plans, and the government would pay a big chunk of the cost of those plans. (The plans would be forced to take all comers, to prevent cherry picking.)

Forcing seniors to shop for their plans would make the system more efficient and slow the rise of health-care costs, the Ryan plan argues:

In health care, as in any other economic arrangement, control of money is power. When it comes to controlling health-care costs and saving the nation from bankruptcy, the question is: Who gets the power? One centralized federal government, or 50 million empowered seniors holding providers accountable in a true marketplace?

But the nonpartisan Congressional Budget Office doesn't seem buy this argument. In its analysis of Ryan's plan, the CBO writes:

A private health insurance plan covering the standardized benefit would, CBO estimates, be more expensive currently than traditional Medicare. Both administrative costs (including profits) and payment rates to providers are higher for private plans than for Medicare.

In other words, according to the CBO, the private market would be more expensive than the current system, not less. Ultimately, CBO says, the Ryan plan would lower costs for the government and raise costs for the elderly.

For More: Listen to Planet Money's This American Life shows on the economics of health care: "More Is Less," and "Someone Else's Money."

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