Are Republicans Plotting a 100% Death Tax on the Middle Class?

Merrill Goozner of GoozNews has a provocative take on the Ryan plan for Medicare. He contends that it is the equivalent of a 100 percent estate tax (or “death tax” in GOP parlance).

He has a point. Ryan would shift most of the cost of Medicare to patients and give them more “skin in the game,” aka incentives to keep costs down. That’s fine when we’re talking about moderate expenses for middle class people, such as encouraging patients to take a generic statin instead of a branded one. But it won’t work for the big expenses, like hospitalization, that characterize end of life care and which account for much of the cost of Medicare. As Goozner argues:

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.

Therefore, Goozner expects the result to be that many people will loose their life savings to the medical profession and have nothing to pass on to their kids. Instead of the “death tax” going to the government it will go to the medical profession.

I agree that giving individual consumers more “skin in the game” is unlikely to affect medical practice much, especially for costly procedures and hospitalizations. The free market approach that works so well in other areas of the economy to promote efficiency, value and competition doesn’t work well in the health care environment.

But Ryan has done us a favor by getting people to start to face up to the reality that the country can’t afford it’s current approach to Medicare in particular, and that if today’s working age population wants to receive some form of Medicare at retirement we’ll have to make some changes.

The solution isn’t to put Medicare cost control in the hands of private insurance companies. Take one look at Medicare Advantage with its high costs and you’ll see why. But we also won’t be able to keep costs down just by bashing insurance companies either and focusing on their profits and executive salaries.

What we’ll really have to do as a country is figure out a way to reduce the cost of care delivery. Accountable Care Organizations (ACOs) or something like them are a reasonable first step in that direction. It’s a baby step that could still end up backfiring as ACOs lead to consolidation of local market power. But the sooner we come to understand the need to focus on the delivery system as a cure for high costs the better.

And as long as Ryan has opened the door to radical ideas, maybe we’ll also start losing our fear of looking at best practices, i.e., how other rich countries manage to spend at half or less of the US level. When I hear politicians talk seriously about what lessons we can adopt from countries like the UK, Switzerland, France and Singapore I’ll know we’re getting real.