Tuesday, August 3, 2010

Ezra Klein on Paul Ryan

Cross-posted from Critical Condition on National Review Online.

Ezra Klein has an excellent post up on the recent spate of articles on Paul Ryan. Here is Klein on Ryan’s proposal for Medicare reform:
Ryan’s proposal is an admission of the reality. And so now we get to have a conversation. How would you prefer to see growth slowed? Medicare becomes a private program and you have to buy your own private insurance with checks that pay for less and less? Or Medicare puts you and 40 million of your closest demographic friends into a big pool and goes to the medical industry and says that if they want access to these millions and millions of customers, this is how much they can charge?
This is exactly the conversation we need to be having. Not a demagogic conversation in which each side complains that the other side is “cutting” Medicare: but rather one in which each side says, “here is how we propose to create a fiscally sustainable health care system.”

From 1969 to 2008, the average annual growth in the Consumer Price Index was 4.3%; overall U.S. health spending increased 9.7% per year over the same period. But Medicare? From 1969 to 2008, Medicare grew at an average annual rate of 11.5%. (For those who prefer more recent history, the numbers are 2.8%, 7.0%, and 8.5%, respectively, from 1999 to 2008.) That growth rate is likely to increase as the Baby Boomers start to retire. And there is simply no way for the United States to survive with a Medicare system that is growing at three times the rate of inflation.

Klein breaks down the philosophical difference quite well. Liberals believe that imposing price controls is the way to bring down costs. Unfortunately, price controls have been tried over and over again in the Medicare system, with no long-term effect on Medicare expenditures. This is because doctors and patients will always find ways to outwit the system, and regulators are left playing a game of price-control whack-a-mole, in which Washington will always be a few years behind the curve.

Price controls, in a system where health care is “free” at the point of care, give patients and doctors no incentive to think about value: is it worth spending $100,000 on this high-tech cancer treatment that may extend your life by four months? The British approach is to say no one can have that treatment, because it’s too expensive. The free-market approach is to incentivize companies to set lower prices for their products, so that they will be widely adopted, and to assign higher value to those products that patients find to be genuinely life-enhancing while assigning lower value to incremental advances.

Another side effect of price controls is the destruction of the American pharmaceutical, biotechnology, and medical technology industries, which employ more people than do Detroit’s Big Three, and do much more for our economy and our quality of life.

The alternative approach, advocated by Paul Ryan, is to let patients buy their own insurance for themselves, instead of getting it from their employers or the government. This way, they can shop for value, and weed out wasteful or needlessly expensive plans. The market-based system incentivizes individuals to act responsibly, which generates enormous savings in aggregate. This is how it’s done in Switzerland, whose government spends only 2.7% of GDP on health care, compared to our government’s 7.4%. Switzerland has universal coverage, with graduated subsidies for those in need, and arguably the highest-quality health care system in the world.

The Swiss have achieved every goal that liberals seek from a health-care system, excepting those for whom abolition of the private sector is also an important objective. Could it be that, just as in foreign affairs, Switzerland is a place for common ground in health care policy?


  1. Dont the Swiss use price controls also?


  2. Yes, and they don't work. I never said the Swiss system was perfect. But it's the best there is, in my view.

  3. "The alternative approach, advocated by Paul Ryan, is to let patients buy their own insurance for themselves, instead of getting it from their employers or the government. "

    Sidebar alert.

    A year ago, I attended a John Larson Town Meeting run by John Larson. Larson is my U.S. Representative (Hartford, Ct) and he is also chair of the Democrat caucus in the House.

    Someone in the audience that evening asked the very question cited above.

    Larson's response (so help me this is verbatim, I was sitting in the front row and immediately jotted it down):

    "But that would be single-payer."

    He was engulfed in a chorus of loud disagreement from his constituents who are clearly more knowledgeable than Larson.

    And you know what else? Larson will be reelected easily this fall.

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