Are Republicans plotting a 100% death tax on the middle class?

Merrill Goozner of GoozNews has a provocative take on the Ryan plan for Medicare. He contends that it is the equivalent of a 100 percent estate tax  (or “death tax” in GOP parlance).

He has a point. Ryan would shift most of the cost of Medicare to patients and give them more “skin in the game,” aka incentives to keep costs down. That’s fine when we’re talking about moderate expenses for middle class people, such as encouraging patients to take a generic statin instead of a branded one. But it won’t work for the big expenses, like hospitalization, that characterize end of life care and which account for much of the cost of Medicare. As Goozner argues:

Seniors and the poor account for over half of health care spending. Within those groups, 5 percent of the population accounts for 50 percent of health care costs; and 20 percent of the population accounts for about 80 percent. These costs come for the most part at times when economic incentives have no influence at all on medical decision-making: in medical crises; in treating chronic conditions; and, for most Medicare patients, in the last six months of life.

Therefore, Goozner expects the result to be that many people will loose their life savings to the medical profession and have nothing to pass on to their kids. Instead of the “death tax” going to the government it will go to the medical profession.

I agree that giving individual consumers more “skin in the game” is unlikely to affect medical practice much, especially for costly procedures and hospitalizations. The free market approach that works so well in other areas of the economy to promote efficiency, value and competition doesn’t work well in the health care environment.

But Ryan has done us a favor by getting people to start to face up to the reality that the country can’t afford it’s current approach to Medicare in particular, and that if today’s working age population wants to receive some form of Medicare at retirement we’ll have to make some changes.

The solution isn’t to put Medicare cost control in the hands of private insurance companies. Take one look at Medicare Advantage with its high costs and you’ll see why. But we also won’t be able to keep costs down just by bashing insurance companies either and focusing on their profits and executive salaries.

What we’ll really have to do as a country is figure out a way to reduce the cost of care delivery. Accountable Care Organizations (ACOs) or something like them are a reasonable first step in that direction. It’s a baby step that could still end up backfiring as ACOs lead to consolidation of local market power. But the sooner we come to understand the need to focus on the delivery system as a cure for high costs the better.

And as long as Ryan has opened the door to radical ideas, maybe we’ll also start losing our fear of looking at best practices, i.e., how other rich countries manage to spend at half or less of the US level. When I hear politicians talk seriously about what lessons we can adopt from countries like the UK, Switzerland, France and Singapore I’ll know we’re getting real.

April 18, 2011

2 thoughts on “Are Republicans plotting a 100% death tax on the middle class?”

  1. I have a really hard time taking seriously all of the bashing of Medicare Advantage and its “high costs”. For example, did you know that CMS sets a payment rate of over $1400 per member, per month, to Medicare Advantage plans in Dade County Florida (Miami Area)? Carriers have trouble doing business in this area because they cannot provide that dollar amount of benefits. Things like free gym memberships, two weeks of free meals when you get sick, and other generous benefits along with near zero cost sharing and zero premium are the norm there.

    This isn’t a problem caused by the MA carriers, but rather the formula used to set the payment rates, which is based off of the costs of original Medicare. This means that FFS Medicare is paying $1400 for something a private insurer can (and will, if allowed) provide for $800! Why does Medicare pay $1400 in Dade county for FFS Medicare beneficiaries, you ask? Fraud controls are essentially non-existent, that’s why. Dade County, along with a few others across the nation, is rife with Medicare fraud run by organized crime syndicates. Drugs and gambling aren’t profitable enough, so why not just take it straight from the taxpayer??

    Unfortunately, the rules of the road here are that the payment set by CMS must be used in its entirety by an MA plan to provide benefits. If a carrier “bids” below the CMS payment rate, approximately 75% of the difference between the payment rate and the bid amount directly provides additional benefits. The remaining 25% goes back to the government (rightfully so), however insurers are certainly not rewarded, and more likely penalized, for offering benefits more cheaply than original Medicare does.

    The question here comes down to incentives. Insurance carriers and taxpayers have aligned incentives (keep costs down) while the government has a largely misaligned incentive structure (get re-elected). I don’t care if you’re democrat or republican, you’re going to spend that taxpayer money however you can to get re-elected. Somehow, this all gets lost in the evil insurer bashing.

    That being said, serious regulation of executive compensation among insurers is imperative or trust will never exist, forcing compulsory, single-payer healthcare as the only option.

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