Friday, March 26, 2010

Health Care Rationing is Responsible and Necessary?

"Ultimately, even that (the VAT) won't be enough. As the population ages and health care becomes increasingly expensive, the only way to avoid fiscal ruin (as Britain, for example, has discovered) is health care rationing." - Charles Krauthammer
http://www.realclearpolitics.com/articles/2010/03/26/the_vat_cometh_104936.html

I reject that idea as a general principle, but it probably does apply to the position America finds itself in. What I like most about the statement is that it raises the difficult questions that our politicians are unwilling to broach. As a society we are getting older. Health care for the elderly is much more expensive than health care for the young. There are two ways to pay for health care in one's old age.

1) Place the burden of paying for your old age care on your kids and grandkids.
2) Save for health care expenses in your retirement planning.

Now, it's a no-brainer to me that #2 is the responsible choice in today's demographic environment. However, most American's seem to have chosen #1 a long time ago and never re-evaluated that choice. By choosing #1 and placing the burden of this wealth transfer on government taxation, we set up a system that was doomed to failure when dropping fertility rates caught up with rising benefits. The system functioned well with a rapidly growing population (e.g., it worked well for the WWII generation because they had a lot of kids). However, what works when there are 5 taxpayers for every retired person doesn't work when there are only 2 taxpayers for every retired person and health care for the elderly has come to cost far more than the average house. Even including government benefits (which cover far more than individual contributions) Fidelity estimates that health care will cost somebody retiring today a quarter million dollars.

The bottom line is that most people don't realize is that if you don't save for your health care expenses, your care will be rationed, and that's actually the responsible thing to do.

Either that or this country will destroy it's financial house through extreme deficits and hyper-inflation, leaving far fewer people with jobs and health care coverage in the long run.

I'm betting on financial ruin for this country, but I'm a pessimist by nature. I don't think our politicians have the courage to make necessary cuts. I think the elderly are too @#$# selfish to vote in people willing to make those difficult choices, and I think the young are too ignorant and absorbed in their own entertainment to worry about the future until it's much too late.

MB

5 comments:

MarkC said...

I couldn't agree more.

A basic principle, in my mind, is that whoever is paying for something gets to choose how the money is spent.

To the extent that we depend on others to pay for our healthcare, we have to accept that they get to choose a good deal of how that money is spent.

With an insurance company, I can negotiate a contract that mandates various levels of coverage. I don't have nearly that level of control with the government.

Of course, in our current system, I don't really have that much control over my insurance care, either. To get the tax breaks that are so helpful, I have to use the insurance that my employer decides is right for me. And all insurance companies are forced, by stringent regulations, to be basically identical, stifling any innovation that could give me a wider array of options.

But, that's all been the case for as long as I can remember.

If we don't change something fundamental in the next dozen years or so, the system will financially collapse. Government may take over, and prop it up for a while with exorbitant taxes and, yes, rationing... but it sure won't be what any of us want it to be.

We need less regulation, more options, more competition (not just between identical companies, but between companies with real differences, fostering innovation). We meed more ownership (that is, more direct costs) for consumers, more visibility into what we are paying, and more motivation for us as consumers to be frugal and selective about our healthcare choices.

But those are fundamental changes in the system, changes that almost nobody has a political or financial motivation to support.

Mark

Kevin said...

Great comments, MB and Mark! They make a lot of sense to me. I try to be optimistic and things still look bad, though I hope for radical change before ruin.

MB, what is Krauthammer's "idea as a general principle" that you reject in your first sentence?

Kevin

MamasBoy said...

Kevin,

I reject the idea that rationing is absolutely necessary, because I reject the idea that people are incapable of saving for their retirement, including health care costs.

Mark,

Excellent ideas. A nice counterbalance to my whining.

MB

MarkC said...

MB,

I figure healthcare rationing is fundamentally necessary. There simply isn't enough money in the economy for everyone to get all the healthcare they could possibly want.

The question is... will our healthcare be rationed by the government, in a way that we essentially can't control at all? Will it be rationed by a health insurance company... and if so, will we have real choice (through competition) about how that company rations its care?

Or, will healthcare be rationed by our finances? Because if it comes down to savings, none of us will ever be able to save enough to cover all of the potential care we might need.

What if I go into a coma for 15 years? That sort of life-preserving care is expensive. If it's dependent on my savings, no matter how well I save, I'm going to run out of money well before 15 years is up. If that's how my healthcare is rationed, the machines will get shut off and I'll die. If healthcare is rationed through some other means, then maybe I get kept alive for all 15 years, everybody under my insurance umbrella pays a little more, and someone else gets cut off, based on some actuarial formula.

For example... currently, cancer treatments are only covered in Oregon if they have a certain percent chance of keeping the patient alive for a certain number of years (I think it's 80% chance of 5 years). If the risk is greater, or the expected benefit is less, they send out a letter suggesting assisted suicide as an alternative option that would be covered. (I'm not sure if they still do this, but they did for a while at least.)

That's government rationing at its finest.

But is there any system where everyone gets highly-expensive but highly-uncertain cancer treatments paid for? No... not even private rationing. Very few of us will ever be able to support such treatments, no matter how well we save, and neither insurance or government will ever be able to commit that many resources while still keeping rates/taxes somewhat affordable.

So, yes, as I see it, rationing of some sort is inevitable.

Mark

MamasBoy said...

Mark,

You are right that, including rationing due to lack of finances, a segment of the population (likely a large one) will always be subject to some form of rationing.

What I should have said, was that, as a practical matter, the vast majority middle class and above should never experience this rationing. The vast majority of the middle class should be able to theoretically save enough to pay for health insurance in their old age that will cover 95% of illnesses. However, as one approaches the end of life, there will always be experimental treatments to address aggressive diseases, and I am not including that, so maybe I should just concede that all but the extremely wealthy will be subject to rationing, ranging from the slight to the rather severe, even if they save.

What concerns me is that I see the middle class of this country headed for a period of rather severe rationing compared to anything experienced in well over 50 years. The average baby boomer has saved almost nothing to survive on, let alone pay for hospital expenses. Combined with their low fertility rate and a rather expensive current standard of health care, you have a recipe for disaster.