Tuesday, October 9, 2012

David Brooks Likes The Voucher Approach To Medicare

The the surprise of nobody, David Brooks tells us that a market based approach to cutting Medicare costs is better than the Obama plan.  His argument is simple and wrong.  Its simple because he assumes that Obama's ACA plan will not reduce costs.  In that case, we must try something else.  He admits that we don't know whether the voucher plan will work, but it is better than doing nothing. Moreover, despite the fact that most healthcare economists do not believe that the voucher plan will cut costs for beneficiaries, his faith in a market based approach is undeterred.  We already have the kind of plan that he wants for Medicare in the US.  Businesses who provide healthcare coverage, and individuals who purchase their own plans, can choose among a number of insurance companies that compete for their business.  Businesses are able to negotiate lower premiums than individuals, but their premiums continue to rise faster than inflation.  Individuals, with little negotiating power, and less information, do even worse.  Why should we expect that seniors would be better served by competition among insurance companies, than businesses or individuals are able get today from competing insurance providers?  Moreover, government would still be involved in the "market".  Government would set the value for the vouchers, and its decision will determine the level of benefits that seniors will receive from insurance companies that have demonstrated an inability to contain healthcare provider price inflation.  Seniors will receive fewer benefits, or they will have to pay the cost for price inflation.  Insurance companies will also be less constrained than they are by the ACA.  It is in their best interest to offer insurance to the healthiest candidates and reject those most in need of healthcare.  Around 25% of Medicare beneficiaries account for 80% of Medicare's payments.

The summarize David Brooks' astute analysis of almost every problem, we should favor market outcomes over government determined outcomes.  Therefore, we should vote Republican, even if they only like market outcomes that work to the advantage of their supporters. 

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