Code Red: Two Economists Examine the U.S. Healthcare System

April 14, 2011

What I Learned in the Stalls at the U of C

Filed under: Health Reform,Medicare — David Dranove and Craig Garthwaite (from Oct 11, 2013) @ 8:22 am

So President Obama has responded to the Ryan/Enthoven voucher proposal with a plan of his own. The President will not dignify the voucher proposal with a serious critique. But he will save Medicare by making deeper cuts to provider payments. In going this route, Obama is proving to be as anti-intellectual as his predecessor in the Oval Office. This is rather alarming considering how much time Obama spent in Hyde Park. Perhaps he hung out at the University of Chicago not for the mental stimulation but because he thought it was a good career move.

Rather than engage in a meaningful debate about the voucher proposal, Obama and others claim that the Ryan/Enthoven plan will increase the financial burden on seniors. If this is the problem, the solution is easy. Make the vouchers bigger and means-test them. One of the beautiful things about the Ryan/Enthoven plan is that it gets the economics right and limits the debate to the simplest of questions: how much should we transfer wealth from taxpayers to seniors? I suppose the real problem is that seniors may not like the answer.

Obama would be hard-pressed to debate the voucher plan on its merits because the very arguments he might muster against it – the potential for adverse selection and the need to assure that everyone uses their vouchers – are the same arguments that have been leveled at his insurance exchange proposal. So the President offers an alternative that is far worse. Anyone who ever used a bathroom at the University of Chicago knows that you can’t get what you refuse to pay for. If the government keeps slashing Medicare payments, doctors and hospitals will either refuse to see Medicare patients, or cut back on the quality of care, or both. I can see seniors lining up at their local CVS for treatment, because no one else will take them.

When Ronald Reagan was elected President in 1980, there was bipartisan support for Alain Enthoven’s vouchers. Nearly half of Congress was prepared to vote for the proposal; all it needed was a push from the White House. But Reagan was opposed to any plan that would require new taxes (to pay for the means-tested vouchers) and did not support the plan. How ironic that a President from the other end of the political spectrum has once again refused to consider Enthoven’s brilliant plan.


  1. I’m speechless. Do you really consider medicare to be an unearned transfer of wealth from hardworking taxpayers to lazy, greedy seniors? Do you deny that they put “skin the game” during their working years and are equity holders in the program? I’d love to understand your thought process. My understanding could not be more different.

    Comment by Hermann Mazard — April 18, 2011 @ 9:19 am

    • “Lazy, greedy” are your words, not mine. And the “skin in the game” is a small percentage of the cost of the benefit they receive.

      But neither point is important. What is important is that the Medicare system would work more efficiently, providing more benefits at lower cost, if seniors could decide for themselves how to spend the money they have paid in plus the subsidy they receive from everyone else. If seniors would rather pocket some money instead of having an expensive indemnity insurance plan, I am for it.

      There is bound to be disagreement about how much workers shoudl subsidize seniors (and make no mistake, there is a considerable subsidy.) Many who have looked at the numbers believe that the current subsidy is insufficient to sustain Medicare. President Obama agrees with this conclusion and proposes to drastically reduce the cross-subsidy (by drastically lowering payments to providers.) Only he plans to make these cuts without increasing the efficiency of the system and without giving seniors the kinds of options that he wants the rest of Americans to have. (In fairness, he is promoting ACOs which are a promising update to HMOs. But he is not allowing seniors to share in the financial benefits of joining an ACO.)

      Comment by dranove — April 18, 2011 @ 9:31 am

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