Misconceptions: “Medicare is Going Bust”

by Benjamin Studebaker

Lately it has become fashionable among political pundits to declare that the US Presidential election has devolved into a negative slug fest in which both Obama and Romney are equally culpable, lying and distorting and refusing to accept fundamental realities. This is a sort of professional centrism–taking it as an article of faith that both sides are equally to blame. The trouble is that this centrism doesn’t reflect reality and consequently, in order to maintain it, these “centrists” have resorted accepting blatantly false claims from the American political right. Chief among these is the claim that “Medicare is going bust” and that Paul Ryan’s proposal to turn Medicare into a voucher system is some kind of bold, serious solution. Today I set out to examine and refute that claim.

There are really two figures that need to be understood to understand the Medicare debate:

  • Inflation-adjusted Medicare costs rose 400% between 1969 and 2009.
  • Inflation-adjusted private health insurance costs rose 700% between 1969 and 2009.

The right’s reading of this data is to point to the 400% and go “Medicare costs are skyrocketing! Clearly government programmes don’t work, we need to turn Medicare into a voucher system and let the private sector do its thing!” The second figure is ignored, and it’s absolutely critical to understanding the problem.

Private health insurance costs have been rising almost twice as fast as Medicare costs. If you put people on a voucher system, where the government gives people some money and tells them to go buy private health insurance, it will cost them more money. It will be more expensive than doing nothing. Paul Ryan’s “sensible” Medicare solution is no more sensible than his budget was.

This is not to say that long-term health care costs in America aren’t a problem for the government. It is however to say that the solutions being described as sensible or reasonable by people in the media are nothing of the kind. Just look at what these guys are saying–here’s Jacob Weisberg from Slate:

Ryan’s alternative to Medicare hardly seems as terrible as Paul Krugman makes out. Seniors would enter the health care world the rest of us live in, with co-payments, deductibles and managed care. Eventually, cost control would require some tough decisions about end-of-life care and the rationing of high-tech treatments that have limited efficacy. But starting with a value of $15,000 per year, per senior—the amount government now spends on Medicare—Ryan’s vouchers should provide excellent coverage. His change would amount to a minor amendment to the social contract, not a fundamental revision of it.

The critical bad assumption here is that private sector health care is cheaper, that if you offer seniors a voucher equivalent in size to what they are currently getting from Medicare, it will buy the same or even superior private sector coverage. It won’t. And, as time goes on, the amount it buys, even if you were to increase the size of the voucher at the same rate that Medicare coverage has been increasing, would continue to lag further and further behind, leaving more and more of the excess cost to be covered by seniors individually. This is why the voucher system is described by Obama and company as “the end of Medicare as we know it”–it gradually shifts the burden of payment from the government to seniors, a burden of payment that will still continue to increase at an unsustainable rate.

The real problem with the health care system is that health care costs are rising for everyone at far in excess of the rate of inflation. Medicare has managed to get those increases down to 400% over 40 years from the 700% increase being experienced by the private sector, but even that has been far from sufficient. This doesn’t change the fact that the worst possible solution is to take the programme that saw 400% cost increases and turn it into more of the programme that saw 700% cost increases. We would actually save some money on health care as a society if every single American citizen were signed up to Medicare tomorrow, moving millions of people from the track that saw the 700% cost increase onto the track that saw the 400% increase. Still, let’s not play games, a 400% cost increase is pretty bad, even if it’s not as bad as a 700% increase. The status quo for Medicare is not sustainable just because the status quo for the private sector is even less sustainable.

So where does this leave us? Well, we know that Medicare reforms that make it more like the private insurance system will only add to costs further. So what else could we do to reduce Medicare costs? How do we get the amount spent on health care per capita in America to fall, or at least to remain stable? There are dozens of glittering examples of how to do this, fortunately. Dozens of countries in which health care quality has been rated similar or superior to our health care quality and in which the amount spent per capita is lower. Three dozen, actually. There are 36 countries with higher rated health care systems by the World Health Organisation, and all of them spend less per capita on health care than America does, and not just slightly less, but oftentimes as much as 50% less. What sort of health systems do they have?

  • Single Payer (UK/Canada): one government-run insurance company that covers everyone
  • Multi-Payer (France/Japan/Germany): a state-run insurance company competes against private companies

Both variants have this in common–a state run insurance company. In single payer countries, everyone uses it, in multi-payer countries, it is an option (usually a very popular option). Wait a second, isn’t “the public option” something we’ve talked about before? Yes, that was part of Obamacare originally, before republicans in congress threatened to filibuster unless it was taken out, and Obama and the democrats caved in and accepted that demand. We talked about “serious health reform”, we tried to do it, and the very people now declaring Paul Ryan to be the only grown up in the room are the very people who opposed real health reform last time, slandered it as “socialism”, and got it killed.

These professional “centrists” are feeding the public disinformation and perpetuating misconceptions. They are not “sensible, impartial centrists”, they are purveyors of ignorance. They should be ridiculed and scorned by thinking people everywhere.

Source List:

Paul Krugman:


World Health Organisation:



More Jacob Weisberg: