Commentary

Redistributing Health

Proponents of compulsory, government-designed health insurance can’t seem to understand why others disagree. Perhaps the public is realizing that these proposals are fundamentally about redistributing health?

Health-care “reform,” that is, aims to shift costs and benefits of health insurance from some groups to others. And the losers are turning out to be less docile than politicians had hoped.

All the leading proposals involve massive redistribution from people with healthy lifestyles to those who take more risks. As the Congressional Budget Office explained, “Premiums in the new insurance exchanges would tend to be higher than the average premiums in the current-law individual market… because the new policies would have to cover pre-existing medical conditions and could not deny coverage to people with high expected costs for health care.”

Even in the Obama era, $500 billion is a lot.”

That is, because the politicians want people who’ve already fallen ill to be able to buy insurance at the same rates as the healthy, rates would rise for everyone who has insurance now. That’s why the bills would all force healthy people to buy this overpriced insurance, under threat of fines or prison.

There would also be redistribution from people with employer-paid insurance (particularly in risky jobs with high premiums) to those who would be induced to shun such benefits in order to qualify for taxpayer subsidies.

By far the largest redistribution, however, is from those on Medicare to those who’d become newly eligible for Medicaid or federal subsidies.

The major proposals, the AARP Bulletin explains, “include around $500 billion in savings carved from future growth in Medicare spending over a 10-year period.”

Even in the Obama era, $500 billion is a lot. Yet we’re supposed to believe that less is somehow more — that seniors will benefit from these spending cuts. “The Obama administration and congressional leaders,” intones a recent New York Times editorial, “are hoping to save hundreds of billions of dollars by slowing the growth of spending in the vast and inefficient Medicare system that serves 45 million older and disabled Americans. The savings would be used to help offset the costs of covering tens of millions of uninsured people.”

President Obama, in an Aug. 16 Times op ed, made such redistribution seem easy and painless: “We’ll cut hundreds of billions of dollars in waste and inefficiency in federal health programs like Medicare and Medicaid,” he said.

Such efforts to appease seniors are not working because they are transparently dishonest.

First of all, the Congressional Budget Office figures that cutting “waste, fraud and abuse” might save $200 million a year — that’s millions, not billions.

Second, the hundreds of billions in “savings” are to be carved out of the hides of Medicare providers and Medicare Advantage benefits, not Medicaid. In the Senate Finance Committee proposal, Medicaid gets $345 billion more money from 2014 to 2019.

Third, Medicare is already headed to insolvency. As its trustees openly warn, the program’s trust fund will be empty in six to nine years, because its spending continues to grow far faster than the taxes that support it.

That is, Medicare will undoubtedly be slashed again and again in the years ahead, and fees increased — simply to keep the program from eating into the general budget (which is already groaning under unprecedented deficits).

This harsh reality does not turn the insolvent Medicare mess into a congressional piggybank, so that cutting Medicare payments to doctors can be magically transformed into a newfound source of free money to lavish on Medicaid and health-insurance subsidies.

The Times claims the cuts should actually make Medicare better “for most beneficiaries,” partly by “helping keep Medicare solvent.” That is either a hoax or fraud. If “the savings would be used to help offset the costs of covering tens of millions of uninsured people,” as the Times says, then the same savings can’t also be used to shore up the Medicare trust fund.

In any case, the proposed Medicare cuts are unbelievably huge. As the CBO explains, the Senate Finance proposal “would increase payment rates for physicians’ services for 2010, but those rates would be reduced by about 25 percent for 2011 and then remain at current-law levels… Under the proposal, increases in payment rates for many other providers would be held below the rate of inflation.”

Amazingly, the AARP Bulletin describes these draconian cuts as “paying doctors more for practices that improve quality of care and save money; and paying providers (notably hospitals and home health agencies) a little less of an increase each year.”

Sorry: Slashing physician payments by about 25 percent in a single year (and 5.5 percent in later years) is not “a little less.” And holding other fees below inflation translates to a perpetual drop in real wages for health-care employees.

Proponents of raiding Medicare to finance “reform” (redistribution) pretend that cutting Medicare payments for services, procedures, tests, devices and drugs is not at all the same as cutting benefits. Nonsense. If we pay health-care providers far less, then they will provide fewer services to Medicare patients. As President Obama suggested, just tell grandma to skip the hip surgery and pop pain pills instead.

The president and his allies in Congress believe they can use deep cuts in Medicare — plus steep new taxes on health insurance, drug and medical device companies — to pay for a vast expansion of Medicaid and new health-insurance subsidies.

These grandiose redistribution schemes are grounded in lethal economics and suicidal politics. Because bad ideas are hard to sell, politicians and journalists have been peddling health redistribution with the rhetorical and statistical equivalent of waste, fraud and abuse.

American voters, particularly seniors, don’t like to be lied to. They are just as leery of the political redistribution of health as they are of the redistribution of wealth.

Alan Reynolds (a senior who carefully avoids signing up for Medicare) is a senior fellow with the Cato Institute and the author of Income and Wealth.