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FROM: Megan McArdle
TO: Phillip Longman, Clive Crook
SUBJECT: Megan McArdle's Jan/Feb article
DATE: January 4, 2008
At the end of this discussion, we seem to be converging on a consensus that the main issue the Boomer retirement confronts us with is “How are we going to provide health care for all these geezers?” This is hardly surprising; “Medicare is the real problem” is the consensus of pretty much every group that has ever tried to seriously discuss the entitlement challenge.
Medicare is indeed a real problem. But to my mind it is not a problem for the reasons that most people focus on. Much of the debate over health-care reform has centered on two related observations: that Medicare is consuming an ever-growing share of the American government’s budget; and that health care is consuming an ever-growing share of American GDP. This is generally stated as a “problem” that self-evidently needs to be “solved”.
I don’t see why. In 1700, the overwhelming majority of economic activity was the growth and production of food. To an economic analyst of the time, our current economy might seem to be on a breakneck road to ruin. Goods and services, after all, compose an ever growing share of our economy—surely, with so little of our income to devote to food, we are all on the brink of starvation!
The fallacy is obvious, stated that way: we buy so many goods and services, not because we are starving, but because food is so abundant and easy to grow that we have loads of income to spend on other things.
Similarly, we are not spending more money on health care at the expense of other things we used to enjoy. These days we have more, and higher quality, goods in pretty much every category than we did thirty years ago. Nonetheless, the share of household income that we spend on almost every category has fallen—except for health care. As our income has risen, we have diverted much of the gain into the consumption of medical services. And why shouldn’t we? Is there something better to spend our money on? We are a society so fabulously wealthy that there are whole companies devoted to helping us throw away our excess stuff. Using our added income to buy longer, more active lives seems like a very good use of our economic growth.
In a similar vein, once you grant that the government should be in the business of providing health care, I see no reason to worry if it comes to dominate the budget. The proper question is: are we getting value for money?
Sadly, I think we often aren’t. The program is very poorly structured. On the supply side, it reimburses for treatment, not health. This means that doctors who do a lot of procedures (especially surgeons) do very well out of the program, and doctors who manage health care, like geriatricians, do rather poorly. Unsurprisingly, there’s a pretty strong consensus among everyone except surgeons that we have too much surgery and not enough primary health management.
On the demand side, the limited cost sharing encourages seniors to massively overconsume. Single payer advocates often dismiss worries about overconsumption with lines like “No one gets an appendectomy for fun.” But on Medicare, the main cost of unnecessary doctor’s visits is time—something retirees tend to have weighing heavy on their hands.
The other problem with Medicare is political. The economy can support spending 30% of GDP on health care, but voters may not. Phillip’s point about Mancur Olsen is well taken; their growing number may increase the demands that older voters are able to make on society, but those demands cannot be unlimited. Even if younger voters cannot defeat such proposals at the polls, they can—and do, in many countries—opt out by working in the gray economy. If the existence of Medicare encourages people to save less for retirement, and political exigency forces us to scale the program back, that will be a gross injustice.
However, I must again qualify this pessimistic scenario: the “scaling back” will only be in relation to a future, higher standard of health care. Seniors in 2020 won’t be denied today’s lifesaving technologies; those will, by then, be cheap. Some could conceivably be denied access to the lifesaving technologies of tomorrow—but they will still be receiving the best healthcare in the history of the known universe.
As Phillip suggests, lower level labor is in some ways a bigger concern: who is going to cook the meals, clean the house, and drive grandma to church when she’s ailing? If America’s anti-immigrant sentiment continues to grow, we will probably be forced to rely more and more on the kind of institutional settings that most of us dread. But, with apologies for repeating myself, even the long-term care facilities that have been aptly described as “death’s waiting room” are not so grim as they used to be. A rich society can afford more amenities even for its forgotten citizens. The nursing home and assisted living facility I toured while writing this article were a far cry from the grim warehouses of yesteryear.
In short, these are the worries of affluence. Will we use our rising incomes to help seniors to live an extraordinarily long time, by historical standards, or will a political showdown force the boomers to content themselves with being richer and healthier than any previous generation in human history? Will they play tennis into their eighties, or be brought low by their enjoyment of a rich diet? Will their advanced age leave them lonelier and less in touch with younger generations than their predecessors who were confined to threescore and ten? These are problems, to be sure. But they are problems we should be glad to have.
Page 1: Phillip Longman launches the discussion
Page 2: Clive Crook reacts to McArdle's piece and responds to Longman
Page 3: Megan McArdle responds to Longman and Crook
Page 4: Clive Crook responds to McArdle
Page 5: Phillip Longman weighs in again