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The GOP Health Care Plan: A Difference in Kind, Not Degree

So the Republicans have finally released what I think we can all agree is a plan for Medicare and Medicaid (though of course, I there remains the possibility that some of the people who have been complaining that the GOP "doesn't have a plan" may now retreat to saying that this is "not a real plan").  The plan is very real--though obviously, not to the liking of many.  It essentially voucherizes Medicare (with larger vouchers for the poor and sick), while transforming Medicaid into block grants.


Expect there to be a lot of angry back and forth over this in the next week or so.  But one thing to keep in mind is that this Medicare plan is not effectively very different from what the Democrats claim ObamaCare is going to do:  which is to say, cap the amount of money spent on providing health benefits to those who are not rich enough to opt out of the public system.  The Democrats want to do so by having a central committee of experts decide what our health dollars get spent on; the GOP wants to put those decisions into the hands of consumers.  But this is not an argument about who loves old, sick people more.  Both parties are promising to halt the rapid growth of government health care expenditures, which is definitionally going to fall hardest on old, sick people.

(But what about adverse selection! I hear you cry.  There's a pretty simple answer for that: require any insurer that takes one Medicare voucher to take any Medicare voucher.  The vouchers as proposed are pretty generous, comparing quite favorably with what Medicare currently spends.  And they're vouchers, not cash, so it's not like beneficiaries have any incentive to wait until they're sick to use them.)

Is it crazy to let people decide for themselves what services they want?  Maybe, but there's not really all that much evidence that marginal health care expenditures make people much healthier, so there's pretty limited downside.  Meanwhile, people do like to feel a sense of autonomy.  

There are also the tradeoffs to consider.  It seems quite likely to me that vouchers are going to be better at controlling health care cost growth than a central committee.  Every committee decision that cuts off a potentially useful treatment (and I'm afraid it can't all be back surgery and hormone replacement therapy) will trigger a lobbying explosion from affected groups.  Each treatment is a decision with a small marginal cost to the taxpayer; it's in aggregate that they become expensive.  Which means that the congressional tendency is always going to be to override--and while there are supposed to be structural barriers against this in the bill, they aren't very strong . . . about like trying to quit smoking by hiding your cigarettes from yourself.

Whereas if you put the decision about what treatments to cover in the hands of the patient, the lobbying you face is to increase the overall value of the voucher.  To be sure, this will have a larger (and therefore more powerful) group behind it.  But it will also come with an enormous pricetag, making it much harder for our politicians to rationalize the decision.

The same is true of Medicaid: whatever its effect on health, block grants are much more likely to control costs.  Right now, states have a big incentive to spend, because each dollar of spending generates a matching dollar from the federal government.  It's essentially a 50% off sale on rewarding key constituencies like hospital workers.  Block granting changes the incentive structure.

Of course, many people will complain that they don't want that incentive structure changed, arguing that in many states, Medicaid is already far too stingy.  Okay, but then don't claim that you're going to control costs.  We're going to control costs by paying fewer people to do less stuff.  If you're against that, then you're for continuing the bacteria-like growth of our health expenditures

In the coming debate over health care in this country, we're going to be choosing between two very unpleasant alternatives: letting spending continue to rise, crowding out everything else the government does; or refusing to allow people in the public system access to all the possible treatments for their diseases.  There is no third way that combines wide access to cutting edge treatments with lower spending.

Since denying access to health care is really unpopular, it's natural that whenever convenient, both sides will complain that the other is heartlessly (and ham-fistedly) curtailing access to health care.  But as the GOP starts to coalesce around block grants and vouchers, it looks like the difference between the models lies less in whether we cut, than in how.  The GOP will devolve the decisions as far as possible, while the Democrats will centralize them.  That's the debate we should be having, not whether one side or the other are a bunch of heartless bastards who hate sick people.
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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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