Paul Ryan’s Roadmap, and the Difference between Costs and Spending

Rep. Paul Ryan (R-WI) ably defends his "Roadmap for America's Future" in today's Washington Post.  He doesn't mention Paul Krugman's attacks thereon, nor should he.  (To read why, consult The Atlantic's Megan McArdle and Ted Gayer of the Tax Policy Center.)

I haven't officially weighed in on the health-care aspects of the Roadmap, but hope to do so in the near future.  For the moment, I'll use Ryan's oped to stress a distinction that is crucial to thinking clearly about health care costs.

Ryan writes of the dangers of an un-reformed Medicare program (emphasis added):

Under an ever-expansive, all-consuming central government, costs will be contained with Washington's heavy hand imposing price controls, slashing benefits and arbitrarily rationing seniors' care.

While those forms of government rationing may reduce spending, that's not the same as reducing costs.  On the contrary, those rationing measures may increase health care costs.

Suppose Medicare set its prices for hip and knee replacements so low that no medical-device manufacturer would provide the hardware and no surgeon would perform the procedures.  Medicare spending on hip and knee replacements would fall.  But costs may rise: more seniors would be walking around — or not walking around — in severe pain.  Pain and reduced mobility are costs, even if they don't show up in the federal budget or household budgets.  (Indeed, those costs would be so severe that overall Medicare spending could rise as seniors bought more wheelchairs, sought treatment for pressure sores, etc.).  This is the main reason conservatives criticize Canada's Medicare system and the British National Health Service: reducing health care spending often increases costs.

I therefore request universal compliance with Cannon's First Rule of Economic Literacy: Never say costs when you mean spending.