Undoing Medicare: The Real 'Death Tax'

See UPDATES below and followup items about doctors' views and about the Canadian approach.

From my days as a school kid I remember the original debate over creating Medicare. At the time, my dad -- a small-town doctor and at that stage a conservative -- was, like most doctors and the AMA as a whole, strongly against the plan, as a step toward "socialized medicine." After all, when his patients couldn't pay, he found ways to reduce or forgive their fees. The opposing argument, which in the long run convinced nearly everyone (including the AMA, and my father) was that leaving older people exposed to the threat of open-ended and potentially ruinous medical expenses, or dependent on individual doctors' charity, was harmful all around.


Controlling the open-endedness of medical spending is of course a major public and private challenge. To repeat: "bending the curve" of health-care expenses is absolutely necessary. But until recently it had been taken as settled wisdom, on both policy and political grounds, that insuring people against the risk of complete financial ruin from late-in-life medical expenses left everyone better off. Old people, their families, doctors and the medical system too. Our health care system is out-of-control and unsustainable in countless ways. But very rarely has anyone argued that removing universal coverage for older people would make things better rather than worse.

That's the understanding being challenged by Rep. Paul Ryan's "serious" budget plan. I've been trying to find the way to convey what it would mean to go back to the pre-Medicare era in which each family had to prepare for unknowably large late-in-life expenses. Merrill Goozner, on his GoozNews site, has just now put it in the way I was looking for. He writes (emphasis added):

>>Here's the real argument young and middle-aged people need to hear, and the real reason why the "more skin in the game" argument can never work for seniors or other vulnerable populations, including them when they reach that age. Seniors and the poor account for over half of health care spending. Within those groups, 5 percent of the population accounts for 50 percent of health care costs; and 20 percent of the population accounts for about 80 percent. These costs come for the most part at times when economic incentives have no influence at all on medical decision-making: in medical crises; in treating chronic conditions; and, for most Medicare patients, in the last six months of life.

That's why a voucher program for Medicare, which will shift an increasing share of those inevitable costs onto the elderly themselves, can fairly be categorized as a 100 percent estate tax or death tax. People under 55 need to know that if the plan crafted by Rep. Paul Ryan were passed, most of them will never have a cent to leave to their children. It will all go to the health care industry to support the American way of dying.<<

Here's a bit of real world evidence supporting that view: Why is the savings rate so unbelievably high in China -- as much as 50 percent of the GDP? There are many reasons, crucially including exchange-rate policy. But a very powerful individual motivator is each family's knowledge that there is no Medicare-like system for their older members. Health care is on cash-payment basis there, and so every family must save like crazy against the risk that the parents or grandparents will require very expensive late-in-life care. More savings would be good for America, but that's not the right way to induce them. It's hard to believe that the Republicans will seriously embrace a plan to undo Medicare.
UPDATE: Two points I thought of making, but skipped, earlier today.

1) If one major goal is containing overall health spending, it is flat-out delusional to think that older people, in their role as patients or individual purchasers of insurance policies, can be more effective negotiators than Medicare in its entirety dealing with the health system as a whole.

Doctors gripe about Medicare, but they hardly love the private insurers. And every bit of real-world evidence suggests that private insurers are worse at containing total costs, and of course administrative overhead, than Medicare or especially the VA. I won't give all the details now, but Phillip Longman on the VA is a great place to start. Moreover, the people shopping for insurance will be in a terrible position: older, retired, many or most with preexisting conditions. In short, if you want to "bend the curve" of medical spending, this is exactly the wrong way to do it.

2) If another major goal is reducing the non-purely-economic costs and anxiety of disease and treatment, then this is also a terrible idea. It means that, potentially, every older person, plus his or her family, must factor in a risk they're not now exposed to: the "what if??" of absolutely ruinous medical costs.

In short: the overall economic price tag for medical care is likely to go up under this plan; and the number of people who will have to live with worry about ruinous medical bills will be much greater. This is part of the reason why, until very recently, no "serious" person proposed getting rid of Medicare.

ALSO, a reader in New Mexico writes to say that it's not quite accurate to call this a "100 percent estate tax":

>>It's actually more ironic than you write. This 100% tax only applies to modest estates (ie, those of about 99% of the US population). No matter how hard a billionaire tried to hang onto life, he couldn't possibly spend his entire fortune on end-of-life care. Hence, this tax is something like 100% on estates under, say, $1 million. Above that, if the Republicans have their way, there will be no tax. That's about as regressive a tax as ever suggested.<<

Drop-down image credit: Reuters