More on the Ryan Plan, Medicare, and the 'Death Tax'

I mentioned yesterday Merrill Goozner's contention that Rep. Paul Ryan's "serious" plan to undo Medicare should be considered the real "death tax." Now, some readers' views.

From reader AS:

>>We [already] have that de facto "death tax" in connection with nursing care.

Every family that doesn't have a spare 100k/year effectively rolls the dice regarding how much of an estate may be eaten up by nursing care at the end of life. The only private remedies are 1) LTC [long-term care] insurance, a highly uncertain and problematic product, and 2) strategies to offload assets to children while there's still time.

Perhaps this system is the best we can do right now. There's certainly no will in the U.S. to tax ourselves to the extent that would be needed to provide something like universal LTC coverage. (In an ideal world, how about this bargain: a massive [by US standards] estate tax earmarked for LTC coverage.) But as you suggest, adding near-complete exposure to medical expenses for the elderly would make this risk burden intolerable. I can't believe we're seriously considering it. And in fact, we're not (unless we get a GOP president and Congress before the party changes course...)<<

From a reader with similar experience:

>>Medicare provides a cushion from insolvency only in certain circumstances. If one has cancer or is hit by a truck, it's great. However, if one has Alzheimer's...tough luck.

My Mother had Alzheimer's. In a few short, but excruciatingly painful years, her total nursing home care consumed just under the $250K she had hoped to pass on to me.

I also had to refund MediCal, and pay accumulated legal fees from her trusteeship, another $25K, and was forced to sell the home she was able to pass on. Fortunately for her, she had no understanding of this happening, but the consequences for me and my children have been significant. We need an expansion, not any contraction, of what Medicare will cover..<<

From GP, a scientist:

>>Imagine the tax on a Dr's office staff to manage billing to 23 different insurance plans. That's how many different billing systems my immunologist's receptionist deals with.

My ENT stopped taking anything but Medicare and cash.  He said that his staff was overwhelmed with learning the intricacies of dozens of plans when he decided enough was enough. Medicare doesn't reimburse the most, but billing is simple and they pay promptly. The same cannot be said for private, for-profit insurers. He did the cost benefit analysis and he's been running his practice this way for 2 years.<<

Another reader:

>>Here is what I see happening if the Ryan plan is adopted:

1. As you note, trying to purchase insurance upon retirement will be prohibitively expensive. I'd guess $25,000/ year for a healthy 65 year old. For someone with health problems or pre-existing conditions, impossible. How much of this will vouchers cover? Very very little.

2. Workers will negotiate-like-crazy to have employment-based health insurance extend into post-retirement years. This type of policy will be much more expensive than current plans, to be payed for by employers and workers. Not good.

3. The elderly will die really fast, and use emergency-room healthcare.<<

From an American working in the Middle East:

>>The most obvious question out there for Americans outside of the USA discussions, is "whatever happened to the more liberal version of Obamacare?"

As I understood it, the critical thing about the original White House health care proposal of last year (from the macroeconomics point of view), was to create a govt-managed alternative to private health care insurance, in order to create competition against the private sector and force them to keep rates low. In the polemic that followed, the false accusation of "death panels" arose to kill the initiative, and eventually Obama/Dems had to concede defeat and come up with a more lukewarm version. Which meant abandoning the "government alternative" [aka "public option] proposal. I recall at that time that some economic critics were pointing out that this was the most critical shortcoming in the compromise Obamacare solution, in that it failed to take the opportunity to cap the steady escalation in health care expenses.

We're now a year later and debate is SURPRISE coming up about escalating health care expenses, while in the meantime everybody seems to have forgotten last year's original "government health care alternative in order to cap the expenses". How can that "I told you so" point be brought to the public debate now?<<

Also, from TC:

>>Like yours, my father was a physician. Private practice in Southern California from about 1968 to 1973, then working for a Federal clinic until the big social welfare cuts in Reagan's first term, and then again in private practice in rural Oregon until his retirement a few years ago.

Like many others my father also took notice have when and where medical dollars were spent and to what effect, and I remember about 20 years ago he offered a novel solution to the cost of "dying American style" and it's implication for an aging population.

My father suggested that a elderly person could take a buy out, at (just guessing at a number) 50% of their actuarial benefit. They could travel the world, give to charity, leave to their descendants, or even spend all or some on the cost of dying.<<

After the jump, a dissenting view and a reply.

On the benefits of facing high costs:

>>I disagree with your assertion that exposing people to very large end-of-life costs is a negative.  In fact, I think it could be quite positive for the way medical resources are allocated in this country, and hopefully end "the American way of dying" your article references. While I agree that relying on seniors to fight for better pricing is futile, I think it misses the larger point: is spending the majority of your lifetime healthcare costs to extend your life a few months a good allocation of lifetime resource consumption?  

I believe one of the reasons that capitalism works well is that everyone has the opportunity to allocate their resources the way they see fit, which leads to (in general) people purchasing the goods that maximize their utility / happiness.  This leads to a prioritization of goods, which in turn drives the economy to produce those goods and maximizes overall efficiency.  In the case of end of life healthcare, this system has broken down.  Almost everyone desires to live longer, just as everyone desires to live in a massive house, drive a Ferrari, and fly by private jet. 

However, unlike almost every other good, the end-of-life healthcare does not cost the consumer anything - it is provided by the government at almost no cost (to the consumer).  As a consequence, it is consumed far beyond its utility to the consumer.  Introducing costs to the consumer will make this decision a choice that requires deliberation and thought: do I spend all of my remaining funds (the inheritance for my children) on pro-longing my life a few more months, or do I forgo that extra time so that my relatives can have an inheritance that will benefit them more than the extra months will benefit me?  I think that question will lower end-of-life care and improve overall allocation of resources.  

I do not intend to apply this logic to unexpected chronic conditions.  These conditions are insurable because though they are severe, they are rare and the result of bad luck.  Conversely, end-of-life medical costs are expected and inevitable.  They will occur for the majority of people and as a consequence are not insurable.<<

I don't have the resources to launch a whole health-policy debate, and for now I pass the subject back to your regular health-policy analysts. But two points in response to these notes:

- Neither Merrill Goozner nor I was suggesting that "estate preservation" was a paramount goal of health-care policy. He was mainly making fun of the ominous term "death tax" in estate-tax debates. The real point is that removing Medicare's universal coverage would expose all families below the very-rich level to the threat of unbounded, possibly catastrophic late-in-life medical costs.

- Of course the answer is not just to have Medicare pick up the tab for more of everything. The central reality of the whole health-care mess is that finally someone has to pay for all the new devices and drugs. Therefore the challenge is figuring out which payment/insurance system will achieve the best combination of
     (a)" bending the curve" of medical-spending increase,
     (b) spreading the insurance risk among the population and across each person's stages of life, to spare people anxiety about ruinous late-in-life bills; and
     (c) applying market incentives wherever possible within the strange economy of health care, for people needing care and people providing it too.

Any one of these is hard to achieve; optimizing for three at once is extremely difficult. But -- to return to the original point -- undoing Medicare coverage would be a big step backward on the first two fronts, and negative to neutral on the third.