Truth-in-pricing Medicare will bring down health care 

On April 5th, after House Budget Committee Chairman Paul Ryan released his Path to Prosperity budget plan, former Service Employees International Union President Andy Stern tweeted the following message:

“Get Ready America. Your Share of Medicare costs under Ryan plan goes from 25% to 68% by 2030!” This is actually not quite true (more on that later), and Stern meant this as an indictment of the Ryan plan. But to the extent the statement is true, it is also the reason why the Ryan plan is the best hope our nation has of avoiding fiscal catastrophe.

Just how bad are our nation’s finances?  According to the Congressional Budget Office (CBO), the federal government currently owes other creditors over $9 trillion which comes to 62 percent of gross domestic product (GDP).

Under President Obama’s latest budget plan, publicly held debt would more than double by 2021 to nearly 90% of GDP and net interest payments on that debt would nearly quadruple in nominal dollars.

While Obamacare’s additional trillion dollar Medicaid and premium support spending did not help, Medicare is the true driver of our deficit problems. For many years, Medicare was actually a net contributor to our nation’s bottom line, as revenue collected (in payroll taxes and premiums) were always higher than benefits paid.

But in 2009 Medicare’s Hospital Insurance Trust Fund paid out $17 billion more in benefits than it collected in revenue. The U.S. Treasury will now have to add to our publicly held debt every year in order to cover Medicare’s current account deficit.

And Medicare’s blow to our bottom line is set to explode. Medicare consumes just over 3% of GDP today and is scheduled to grow to 6% of GDP by 2030. Left untouched Medicare will consume 9% of GDP by 2050, and when paired with Social Security and Medicaid spending, would consume all of U.S. tax revenue at current rates. In other words, after paying for just our entitlement programs, the U.S. Treasury would have to borrow every cent needed to pay for every other function of government.

So why is Medicare spending growing so fast? For the same reason that you pay for your own groceries and not the person’s behind you: people consume less of something when they actually have to pay for it. Just in case you needed some hard research to back up this common sense, The RAND Corporation has confirmed that when American families have to pay a greater percentage of their own health care spending, they consume less of it.

Which brings us back to to Stern’s tweet. What the CBO actually said of Ryan’s plan, was that by 2030 the typical 65-year-old would pay for 68% of all their own health care costs (not “Medicare costs” as Stern claimed), compared to just 25% under Obamacare.

The distinction is key. If individuals begin to see more actual bills for the medical services they receive, they will become more cost conscious in their medical consumption. This will in turn force health care providers to start providing real price information on which consumers can base their health care decisions.

Does the average American family know how much they paid for their last gallon of gas? Absolutely. Do they know how much their health insurance company or Medicare paid for their last doctor visit? Probably not.

That is why Americans are much more energy efficient than they were 10 years ago. And that is how the Ryan plan attempts to slow health care spending: by bringing health care costs out into the open for all to see.

 Examiner columnist Conn Carroll is a senior editorial writer.

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A daily newspaper covering San Francisco, San Mateo County and serving Alameda, Marin and Santa Clara counties.
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