Jeb Bush’s Plan to Privatize Medicare Would Be a Disaster
by Benjamin Studebaker
US Presidential contender Jeb Bush recently spoke out in favor of the old Paul Ryan plan to “phase out” Medicare and replace it with a voucher program:
I think a lot of people recognize that we need to make sure we fulfill the commitment to people that have already received the benefits, that are receiving the benefits. But that we need to figure out a way to phase out this program for others and move to a new system that allows them to have something, because they’re not going to have anything.
When pressed on the point, Bush doubled down:
It took less than a day for me to be attacked for the very thing that I predicted would happen and that’s just ridiculous. We need to have a grown-up conversation about these issues.
Bush argues that if we do not privatize Medicare, the system will collapse. Consequently, he thinks those who disagree with him are not taking the issue seriously. But this argument is grossly misleading–Medicare is in a much stronger financial position than Bush would have us believe, and a privatized system would sharply increase healthcare costs for seniors.
Until recently, it was true that Medicare costs were expected to rise significantly as the baby boomers retired. Here’s the trustees’ projection from 2009–Medicare is red, Social Security is blue:
But it turns out that Obamacare has been more successful at reducing costs than analysts initially anticipated, and the new cost projections indicate that Medicare costs will stabilize. Here’s the 2015 projection. Again, Medicare is blue and Social Security is red:
The proposal to privatize Medicare is not new–it was conceived as a response to the spiking estimates we saw 6 years ago. At this point, the plan is no longer consistent with the data. It’s a response to a problem that turns out not to have existed in the first place. There will be a rise to accompany the retirement of the boomers, but this rise will be manageable and costs will soon stabilize. It will be no more than a few percent of GDP. The US recently reduced a budget deficit from over 12% of GDP to less than 3%:
It is well within the ability of conventional fiscal policy to address a deficit increase of a few percentage points. There is no need to “phase out” these programs.
But let’s say, for the sake of argument, that we did implement Bush’s plan. What would happen? Bush proposes to replace Medicare with a voucher system. This means that instead of having the state pay directly for medical care, the state would give people a fixed amount of money with which to purchase coverage from private sector insurers. The problem is that if private sectors costs rise faster than the vouchers do, the quality of the benefits available will steadily shrink over time, forcing seniors either to supplement the vouchers with their retirement savings or do without care. Free marketeers assume that this is not possible because they think that the private sector is always more efficient than the public sector. But in this case, they would be wrong–private sector health care costs have consistently grown faster than Medicare costs, even though Medicare exclusively covers seniors (the people who consume the most medical care):
This means that if we were to implement a voucher system, we would either have to increase the value of the vouchers fast enough to keep up with rising private sector costs or we would have to slowly reduce the real size of the benefit we pay out to seniors. In the first case, we would make the program even more expensive than it currently is. In the second case, we would force seniors to supplement with their own incomes, forcing poorer seniors to accept inferior care or no care at all.
It’s important to remember that if the government reduces the amount it spends on healthcare, the costs do not disappear. Instead the costs move from the state to individual seniors, many of whom are ill-equipped to pay. The government is in a strong position to reduce costs because it has far more negotiating power than any individual senior or individual insurance company. Even though Medicare provides coverage for our most expensive patients, it manages to keep costs down because of the sheer size of the pool of patients Medicare negotiates for. This is why countries with single payer healthcare are able to reduce their costs so much more than the US can–the pool their health programs represent is the entire population. This gives them immense negotiating power:
So why do people like Bush support policies that would either increase healthcare costs or eliminate coverage? I see two possible explanations:
- Ignorance–Bush and others like him simply do not understand that privatizing healthcare increases costs. They either have not seen the research or do not understand how the research fits together.
- Malevolence–Bush and others like him would prefer to see healthcare costs shifted from the state to private individuals because this makes healthcare less progressive. By making each individual bear more of the cost, conservatives enable the government to reduce taxes on the rich. They are indifferent to the suffering and inequality this would promote.
Generally, I prefer to give people the benefit of the doubt and presume that ignorance is the culprit. Either way, it’s clear that those who support Medicare privatization are not to be trusted with political power.