Privatizing Medicare would create more problems than it solves

Introduction

Republicans have long dreamed of finding a way to either privatize or get rid of Medicare, a program that has provided access to health care for well over 100 million Americans since it was created in 1965. As presidential candidate and former Florida Governor Jeb Bush made clear a few days ago, that dream is still alive.

While many Democrats and Medicare beneficiaries were making plans to celebrate the program’s 50^th birthday last week—presidential candidate and Senator Bernie Sanders of Vermont hailed it as a huge success during a speech at a rally of Medicare-for-All supporters outside the Capitol Thursday—Bush was telling a smaller but decidedly richer crowd at a Koch brothers gathering in New Hampshire that it was time for Medicare to go:

“We need to make sure we fulfill the commitment to people that have already received the benefits, that are receiving the benefits. But 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.”

Bush did not elaborate, either to explain why people in the future won’t have anything or to describe what a new system would look like.

But he was trotting out a tried-but-not-quite-true talking point, which holds that because Medicare costs continue to go up (no surprise when you consider our aging population and medical inflation), the country at some point in the future won’t be able to afford to cover health care costs for the elderly as we have for the last half century.

A solution frequently suggested by Republican candidates is to privatize Medicare by giving people a voucher worth a few thousand bucks they could use to buy coverage from a private insurer. It can seem like a fine idea until you take the time to figure out how it would actually affect people, young and old alike.

Consider this: one of the reasons Medicare was created in the first place was because insurance companies really didn’t want old people as customers. To discourage older folks from even applying, the insurers adopted the practice of charging people them five to ten times as much as younger people for the exact same policy. Worse, they refused to sell coverage at any price to people with pre-existing conditions. It’s little wonder that growing numbers of senior citizens were going uninsured.

Historian Peter A. Corning, who was commissioned by the Social Security Administration to write the Evolution of Medicare, described it this way:

“The elderly population was continuing to increase at a rapid rate…Meanwhile, the cost of hospital care continued to rise at about 6.7 percent a year, several times the annual increase in the cost of living…As a result, private health insurance carriers were repeatedly forced to increase premium rates…making private insurance even more prohibitive (or less adequate) for the many old people who were living on fixed incomes. By 1965 the proportion of the aged who were privately insured for hospital care seemed to be leveling off at about 50 percent. A Senate study that year estimated that only one-half of the policies issued to retirees provided comprehensive coverage [that would cover] 75 percent or more of the average hospital bill. In other words, only about 1 in 4 of the aged had adequate hospital insurance protection.”

So Congress and newly-elected President Lyndon Johnson created Medicare in 1965 because, as bad as the situation had already become, more and more seniors were eventually going to find themselves in dire straits when they got sick.

While a voucher program sounds appealing to those who believe a privatized system would be cheaper and more efficient than the current government-run Medicare, it almost certainly would eventually be more costly to taxpayers or return us to the days when many people 65 and older were out of luck.

While Obamacare made it illegal for insurance companies to refuse to sell coverage to anyone because of their age or health status, the insurers can still charge older people three times more than younger people. So for someone 65 or older to be able to buy coverage anywhere close to adequate, the vouchers would have to be pretty generous.

And here’s another reason why such a program would likely cost taxpayers more in the long run: private insurers have not been able to control medical costs nearly as well as Medicare has. Private insurers pay doctors and hospitals considerably more, on average, than Medicare does, because Medicare uses its massive leverage to negotiate more aggressively.

Insurance companies wouldn’t have a problem with vouchers so long as they were sizable enough for them to not only to cover the cost of senior care but also enable them to make a profit. But, as I will explain next week, insurers are finding the current Medicare program much to their liking. So much so that I’d be willing to bet they’re telling their GOP friends it’s time to drop that voucher thing.