The stark choice between the competing visions presented in this year’s presidential election manifests itself most plainly in the Medicare debate. President Obama wants to rely on the federal government to impose price controls and other forms of micromanagement to contain costs while delivering good service. The Romney-Ryan ticket wants to rely on a more traditionally American mechanism – competition.
The Romney-Ryan approach is already proving its efficacy in the prescription drug portion of Medicare. Thanks in no small part to reliance on consumer choice, and the resulting competition, costs have been contained – monthly premiums are stable and costs are 30 percent below initial estimates.
Additional evidence that competition works comes via a column by Robert Samuelson of the Washington Post. He points to a new study published in the Journal of the American Medical Association. The study was performed by three Harvard economists, one of whom, David Cutler, prominently supports Obamacare.
The study finds that Medicare Advantage, a voucher-like program that promotes consumer choice, costs less than traditional Medicare. From 2006 to 2009, it cost 11 percent less on average.
This finding should surprise, if anyone, only the most ardent socialist. When people are able to shop for low-cost, high-quality offerings, providers have an incentive to improve services and lower costs. By contrast, under the fee-for-service approach of traditional Medicare, providers have an incentive to perform unneeded tests and procedures.
Obamacare purports to deal with this problem by cutting reimbursement rates. However, as Samuelson explains, reimbursement reductions don’t improve delivery systems; if anything, they increase the incentive to increase the volume of services, creating more waste. As for the other cost containment mechanisms in Obamacare, they are mostly “fluff,” as Samuelson shows.
Voucher plans are not right-wing, extremist ideas. They enjoy support in both parties. Ryan would permit continuation of fee-for-service; if it’s more efficient and effective, it would survive. If not, its decline would be no great loss. The Ryan plan’s greatest defect may be that it doesn’t start for a decade. We can’t wait that long.